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Does domestic demand matter for firms’ exports?

Author

Listed:
  • António Rua
  • Paulo Esteves
  • Miguel Portela

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.

Suggested Citation

  • António Rua & Paulo Esteves & Miguel Portela, 2018. "Does domestic demand matter for firms’ exports?," Working Papers w201826, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w201826
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    References listed on IDEAS

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    Cited by:

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    3. Tracy Wilcox & Michelle Greenwood & Alison Pullen & Anne O’Leary Kelly & Deborah Jones, 2021. "Interfaces of domestic violence and organization: Gendered violence and inequality," Gender, Work and Organization, Wiley Blackwell, vol. 28(2), pages 701-721, March.
    4. Carlos Melo Gouveia & Cristina Manteu & Sónia Cabral, 2020. "The granularity of Portuguese firm-level exports," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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