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Exporters and Shocks: Dissecting the International Elasticity Puzzle

  • Doireann Fitzgerald
  • Stefanie Haller

Aggregate exports are not very responsive to real exchange rates, though they respond strongly to trade liberalizations, a fact sometimes referred to as the International Elasticity Puzzle. We use micro data on firms and exports for Ireland to dissect the puzzle. Our identification strategy uses within-firm-year cross-market variation in real exchange rates and tariffs to identify the responses of export participation, export revenue and the product dimension of exporting to these variables. We show that (i) the weak response of export revenue of long-time market participants to real exchange rates is key to the behavior of aggregate exports, (ii) export participation also responds less to real exchange rates than to tariffs, but this alone cannot explain the puzzle; and (iii) the revenue response of long-time market participants cannot be accounted for by product entry responses. Hence any model that can successfully account for the puzzle needs to match the intensive margin responses of exporting firms.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19968.

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Date of creation: Mar 2014
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Handle: RePEc:nbr:nberwo:19968
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  1. Bernard, Andrew B. & van Beveren, Ilke & Vandenbussche, Hylke, 2012. "Concording EU Trade and Production Data over Time," CEPR Discussion Papers 9254, C.E.P.R. Discussion Papers.
  2. Andrew Atkeson & Ariel Burstein, 2007. "Pricing-to-market, trade costs, and international relative prices," Working Paper Series 2007-26, Federal Reserve Bank of San Francisco.
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  9. Eduardo Morales & Gloria Sheu & Andrés Zahler, 2014. "Gravity and Extended Gravity: Using Moment Inequalities to Estimate a Model of Export Entry," NBER Working Papers 19916, National Bureau of Economic Research, Inc.
  10. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," CEP Discussion Papers dp0769, Centre for Economic Performance, LSE.
  11. Nicolas Berman & Philippe Martin & Thierry Mayer, 2012. "How do Different Exporters React to Exchange Rate Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 437-492.
  12. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc.
  13. Campa, Jose M., 2000. "Exchange rates and trade: How important is hysteresis in trade?," IESE Research Papers D/427, IESE Business School.
  14. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
  15. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  16. Samuel S. Kortum & Jonathan Eaton & Costas Arkolakis, 2011. "Staggered Adjustment and Trade Dynamics," 2011 Meeting Papers 1322, Society for Economic Dynamics.
  17. Lukasz A. Drozd & Jaromir B. Nosal, 2008. "Understanding international prices: customers as capital," Staff Report 411, Federal Reserve Bank of Minneapolis.
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