Does domestic demand matter for firms’ exports?

António Rua, Paulo Esteves and Miguel Portela

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: The existence of a link between exports and domestic demand challenges the standard theoretical assumption in international trade models and carries out important policy implications. Being a small open economy and one of the hardest hit economies during the latest economic and financial crisis, Portugal is a natural case study for assessing the role of this channel, in particular given the large export market share gains that mitigated the negative effects on economic activity. A key difference of our empirical approach vis-à-vis previous literature is that the estimated relationship between exports and domestic sales results directly from a monopolistic model of a firm selling to both domestic and external markets. Drawing on an appropriate estimation strategy, it is found a noteworthy negative relationship between domestic demand and firms’ exports covering the manufacturing sector over the period 2009–2016. This result holds for almost all industries although with a heterogeneous magnitude. Additionally, there is also evidence that this effect is stronger for larger firms.

JEL-codes: C33 D21 D22 F14 F41 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Does Domestic Demand Matter for Firms’ Exports? (2022)
Working Paper: Does domestic demand matter for firms’ exports? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w201826

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