IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Exports and Capacity Constraints – A Smooth Transition Regression Model for Six Euro Area Countries

  • Ansgar Belke
  • Anne Oeking
  • Ralph Setzer

Traditional specifications of export equations incorporate foreign demand as a demand pull factor and the real exchange rate as a relative price variable. However, such standard export equations have failed to explain the export performance of euro area countries during the crisis period. In particular, the significant gains in export market shares in a number of vulnerable euro area crisis countries did not coincide with an appropriate improvement in price competitiveness. This paper argues that, under certain conditions, firms consider export activity as a substitute of serving domestic demand. The strength of the link between domestic demand and exports is dependent on capacity constraints. 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. In the first case, we differentiate between positive and negative changes in capacity utilization and in the second case between small and large changes of the same transition variable. We find that domestic demand developments are relevant for the short-run dynamics of exports when capacity utilization is low. For some countries, we also find evidence that the substitution effect of domestic demand on exports turns out to be stronger the larger is the deviation of capacity utilization from its average value over the cycle.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.rome-net.org/RePEc/rmn/wpaper/rome-wp-2013-13.pdf
File Function: First version, 2013
Download Restriction: no

Paper provided by ROME Network in its series ROME Working Papers with number 201313.

as
in new window

Length: 38 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:rmn:wpaper:201313
Contact details of provider: Web page: http://www.rome-net.org

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. 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 443-50, November.
  2. Ansgar Belke & Matthias Göcke & Martin Günther, 2012. "Exchange Rate Bands of Inaction and Play-Hysteresis in German Exports: Sectoral Evidence for Some OECD Destinations," Discussion Papers of DIW Berlin 1203, DIW Berlin, German Institute for Economic Research.
  3. Nicolas Berman & Antoine Berthou & Jérôme Héricourt, 2012. "Export dynamics and sales at home," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00988194, HAL.
  4. Soderbery, Anson, 2014. "Market size, structure, and access: Trade with capacity constraints," European Economic Review, Elsevier, vol. 70(C), pages 276-298.
  5. Blum, Bernardo S. & Claro, Sebastian & Horstmann, Ignatius J., 2013. "Occasional and perennial exporters," Journal of International Economics, Elsevier, vol. 90(1), pages 65-74.
  6. Andrew B. Bernard & Joachim Wagner, 1998. "Export Entry and Exit by German Firms," NBER Working Papers 6538, National Bureau of Economic Research, Inc.
  7. Richard Baldwin & Paul R. Krugman, 1986. "Persistent Trade Effects of Large Exchage Rate Shocks," NBER Working Papers 2017, National Bureau of Economic Research, Inc.
  8. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
  9. JaeBin Ahn & Alexander McQuoid, 2013. "Capacity Constrained Exporters: Micro Evidence and Macro Implications," Working Papers 1301, Florida International University, Department of Economics.
  10. Nicolas Berman & Antoine Berthou & Jérôme Héricourt, 2011. "Export Dynamics and Sales at Home," Working Papers 2011-33, CEPII research center.
  11. 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 545-64, September.
  12. Sharma, Kishor, 2003. "Factors determining India's export performance," Journal of Asian Economics, Elsevier, vol. 14(3), pages 435-446, June.
  13. 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, vol. 144(2), pages 272-294, July.
  14. Olivier Blanchard, 2007. "Adjustment within the euro. The difficult case of Portugal," Portuguese Economic Journal, Springer, vol. 6(1), pages 1-21, April.
  15. Vannoorenberghe, G., 2012. "Firm-level volatility and exports," Journal of International Economics, Elsevier, vol. 86(1), pages 57-67.
  16. Campa, Jose Manuel, 2004. "Exchange rates and trade: How important is hysteresis in trade?," European Economic Review, Elsevier, vol. 48(3), pages 527-548, June.
  17. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2001. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," NBER Working Papers 8629, National Bureau of Economic Research, Inc.
  18. 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, 05.
  19. J Bradford Jensen & Andrew B Bernard, 2001. "Why Some Firms Export," Working Papers 01-05, Center for Economic Studies, U.S. Census Bureau.
  20. Antoin E. Murphy, 2000. "The 'Celtic Tiger' - An Analysis of Ireland's Economic Growth Performance," EUI-RSCAS Working Papers 16, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  21. Artus, Jacques R., 1973. "The short-run effects of domestic demand pressure on export delivery delays for machinery," Journal of International Economics, Elsevier, vol. 3(1), pages 21-36, February.
  22. Alfonso A. Irarrazabal & Luca David Opromolla, 2008. "A Theory of Entry and Exit into Exports Markets," Working Papers w200820, Banco de Portugal, Economics and Research Department.
  23. Faini, Riccardo, 1994. "Export supply, capacity and relative prices," Journal of Development Economics, Elsevier, vol. 45(1), pages 81-100, October.
  24. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:rmn:wpaper:201313. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Albrecht F. Michler)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.