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Exports and capacity constraints - a smooth transition regression model for six euro area countries

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  • Belke, Ansgar
  • Oeking, Anne
  • Setzer, Ralph

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. JEL Classification: F14, C22, C50, C51, F10

Suggested Citation

  • Belke, Ansgar & Oeking, Anne & Setzer, Ralph, 2014. "Exports and capacity constraints - a smooth transition regression model for six euro area countries," Working Paper Series 1740, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20141740
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    References listed on IDEAS

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    1. Berman, Nicolas & Berthou, Antoine & Héricourt, Jérôme, 2015. "Export dynamics and sales at home," Journal of International Economics, Elsevier, vol. 96(2), pages 298-310.
    2. Faini, Riccardo, 1994. "Export supply, capacity and relative prices," Journal of Development Economics, Elsevier, vol. 45(1), pages 81-100, October.
    3. Impullitti, Giammario & Irarrazabal, Alfonso A. & Opromolla, Luca David, 2013. "A theory of entry into and exit from export markets," Journal of International Economics, Elsevier, vol. 90(1), pages 75-90.
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    5. Zilberfarb, Ben-Zion, 1980. "Domestic Demand Pressure, Relative Prices and the Exports Supply Equation-More Empirical Evidence," Economica, London School of Economics and Political Science, vol. 47(188), pages 443-450, November.
    6. Ansgar Belke & Matthias Göcke & Martin Günther, 2013. "Exchange Rate Bands Of Inaction And Play-Hysteresis In German Exports—Sectoral Evidence For Some Oecd Destinations," Metroeconomica, Wiley Blackwell, vol. 64(1), pages 152-179, February.
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    11. Soderbery, Anson, 2014. "Market size, structure, and access: Trade with capacity constraints," European Economic Review, Elsevier, vol. 70(C), pages 276-298.
    12. Andrew Bernard & Joachim Wagner, 2001. "Export entry and exit by German firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(1), pages 105-123, March.
    13. Ansgar Belke & Matthias Göcke, 2005. "Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?," German Economic Review, Verein für Socialpolitik, vol. 6(2), pages 185-203, May.
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    16. António Rua & Paulo Esteves, 2013. "Is there a role for domestic demand pressure on export performance?," Working Papers w201303, Banco de Portugal, Economics and Research Department.
    17. JaeBin Ahn & Alexander McQuoid, 2013. "Capacity Constrained Exporters: Micro Evidence and Macro Implications," Working Papers 1301, Florida International University, Department of Economics.
    18. Vannoorenberghe, G., 2012. "Firm-level volatility and exports," Journal of International Economics, Elsevier, vol. 86(1), pages 57-67.
    19. Juan A. Máñez & María E. Rochina-Barrachina & Juan A. Sanchis, 2008. "Sunk Costs Hysteresis in Spanish Manufacturing Exports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 144(2), pages 272-294, July.
    20. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
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    Cited by:

    1. Ansgar Belke & Dominik Kronen, 2016. "Exchange rate bands of inaction and play-hysteresis in Greek exports to the Euro Area, the US and Turkey: sectoral evidence," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(2), pages 349-390, May.
    2. Soares Esteves, Paulo & Prades, Elvira, 2016. "On domestic demand and export performance in the euro area countries: does export concentration matter?," Working Paper Series 1909, European Central Bank.
    3. Belke, Ansgar & Kronen, Dominik, 2017. "Exchange rate bands of inaction and hysteresis in EU exports to the global economy: The role of uncertainty," Ruhr Economic Papers 695, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. Elena Bobeica & Paulo Soares Esteves & António Rua & Karsten Staehr, 2016. "Exports and domestic demand pressure: a dynamic panel data model for the euro area countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 107-125, February.
    5. Álvarez López, M.ª Elisa & Vega Crespo, Josefa, 2017. "La fortaleza competitiva de la economía española/The Competitive Strength of the Spanish Economy," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 35, pages 7-34, Enero.
    6. Ansgar Belke & Daniel Gros & Alcidi Cinzia & Leonor Coutinho & Alessandro Giovannini, 2014. "Exit State-of-play in Implementing Macroeconomic Adjustment Programmes in the Euro Area," ROME Working Papers 201405, ROME Network.
    7. Gros, Daniel & Alcidi, Cinzia & Belke, Ansgar & Coutinho, Leonor & Giovannini, Alessandro, 2014. "State-of-Play in Implementing Macroeconomic Adjustment Programmes in the Euro Area," Ruhr Economic Papers 482, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    8. Alexander F. McQuoid & JaeBin Ahn, 2015. "Capacity Constrained Exporters: Identifying Increasing Marginal Cost," Departmental Working Papers 49, United States Naval Academy Department of Economics.

    More about this item

    Keywords

    domestic demand; exports; hysteresis; smooth transition models; sunk costs;

    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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