Domestic and foreign sales: complements or substitutes?

Matteo Bugamelli, Eugenio Gaiotti and Eliana Viviano

No 248, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: How are the dynamics of foreign and domestic sales correlated at the firm level? The question is relevant in that the sign of the correlation shapes the international transmission of shocks and the effects of policy measures. From a theoretical perspective, the correlation could be either zero, as assumed by standard international trade models, or negative if firms are capacity constrained, or positive if liquidity constraints dominate. The empirical evidence, however, is rather mixed. Using a sample of Italian manufacturing firms in the period 2001-12, we show that: i) the sign of the correlation changes over the business cycle, being negative in the first part of the past decade and positive after the 2008 crisis; ii) all the channels suggested by the literature are involved and they may explain the time-varying correlation; iii) the drop in domestic sales by Italian firms in 2012, contributed negatively to firms' exports, and together with liquidity constraints, the fall reduced the growth rate of exports by an average of 0.6 percentage points.

Keywords: domestic sales; export; credit; liquidity and capacity constraints (search for similar items in EconPapers)
JEL-codes: F10 F12 F14 L11 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Domestic and foreign sales: Complements or substitutes? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_248_14

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