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Exports and Capacity Constraints: Evidence for Several Euro Area Countries

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  • Ansgar Belke
  • Anne Oeking
  • Ralph Setzer

Abstract

We argue that, under certain conditions, firms consider exports as a substitute for domestic demand. Our econometric model for six euro area countries suggests domestic demand and capacity constraints as additional variables for export equations. We apply the exponential and logistic variant of a smooth transition regression model and find that domestic demand developments are relevant for short-run export dynamics particularly during more extreme stages of the business cycle. A 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.

Suggested Citation

  • Ansgar Belke & Anne Oeking & Ralph Setzer, 2015. "Exports and Capacity Constraints: Evidence for Several Euro Area Countries," CESifo Working Paper Series 5455, CESifo.
    • Handle: RePEc:ces:ceswps:_5455
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    References listed on IDEAS

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    More about this item

    Keywords

    domestic demand pressure; error-correction models; hysteresis; modelling techniques; smooth transition models; exports; sunk costs;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F10 - International Economics - - Trade - - - General

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