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How Do Firms Respond to Demand Shocks? Evidence from the European Sovereign Debt Crisis

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  • Ferreira, Miguel
  • Adelino, Manuel
  • Fagandini, Paulo
  • Queiro, Francisco

Abstract

We examine how firms respond to domestic demand shocks using the large and unanticipated shock to government spending in European periphery countries during the 2010-2011 sovereign debt crisis. We find that firms with higher ex-ante exposure to government procurement contracts significantly increase their exports after the shock or exit. Older and larger firms are better able to substitute domestic sales with entry into export markets than younger and smaller firms. Firms with high-skill workers, high productivity and more educated managers are also more likely to start exporting. Our results suggest that mature and high-quality firms drive the response of tradable industries to domestic demand shocks.

Suggested Citation

  • Ferreira, Miguel & Adelino, Manuel & Fagandini, Paulo & Queiro, Francisco, 2020. "How Do Firms Respond to Demand Shocks? Evidence from the European Sovereign Debt Crisis," CEPR Discussion Papers 14640, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14640
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    Cited by:

    1. Diana Bonfim & Sujiao Zhao & Miguel A. Ferreira, 2021. "Sovereign-Bank Diabolic Loop: The Government Procurement Channel," Working Papers w202109, Banco de Portugal, Economics and Research Department.

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    More about this item

    Keywords

    Fiscal austerity; Exports; Investment opportunities; Financial crises;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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