Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154173
Authors: 
Belke, Ansgar
Oeking, Anne
Setzer, Ralph
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper 1740
Abstract: 
This paper argues that, under certain conditions, firms consider export activity as a substitute of serving domestic demand. Our econometric model for six euro area countries suggests domestic demand pressure and capacity constraint restrictions as additional variables of a properly specified export equation. As an innovation to the literature, we assess the empirical significance through the logistic and the exponential variant of the non-linear smooth transition regression model. We find that domestic demand developments are relevant for the short-run dynamics of exports in particular during more extreme stages of the business cycle. A strong substitutive relationship between domestic and foreign sales can most clearly be found for Spain, Portugal and Italy providing evidence of the importance of sunk costs and hysteresis in international trade.
Subjects: 
domestic demand
exports
hysteresis
smooth transition models
sunk costs
JEL: 
F14
C22
C50
C51
F10
ISBN: 
978-92-899-1148-1
Document Type: 
Working Paper

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