Demand Volatility and Firm Export Margins: Evidence from Egypt

Yasmine Kamal ()
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Yasmine Kamal: Cairo University

No 1629, Working Papers from Economic Research Forum

Abstract: This study explains the export behavior of Egyptian firms under demand volatility in destination countries using detailed customs data and high-dimensional fixed effects. It finds that demand volatility negatively affects both intensive and extensive export margins. The effects are particularly evident for large firms that reduce their export sales (especially over time) to more volatile destinations/products and are therefore more likely to exit from exporting more volatile products and less (more) likely to enter (exit) more volatile destinations. These findings corroborate recent literature that emphasizes the greater elasticity of large firms to foreign demand shocks. They are also in line with risk aversion models in which the average risk premium increases with firm size. Given the disproportionate adverse impacts on large exporters, we find that higher demand volatility leads to lower aggregate exports, especially to geographically close countries with low trade costs. Accordingly, uncertainty in demand lessens the positive effect of lower trade barriers on exports.

Pages: 25
Date: 2023-03-20, Revised 2023-03-20
New Economics Papers: this item is included in nep-ara, nep-bec, nep-int and nep-rmg
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