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Exporters and Shocks: Dissecting the International Elasticity Puzzle

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  • Doireann Fitzgerald
  • Stefanie Haller

Abstract

Aggregate exports are not very responsive to real exchange rates, though they re- spond 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 rev- enue 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.

Suggested Citation

  • Doireann Fitzgerald & Stefanie Haller, 2014. "Exporters and Shocks: Dissecting the International Elasticity Puzzle," Working Papers 201408, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:201408
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    File URL: http://hdl.handle.net/10197/5604
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    References listed on IDEAS

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    Cited by:

    1. Irma Rosenberg, 2008. "Monetary policy and commodity and energy prices," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    2. Richard Fabling & Lynda Sanderson, 2015. "Exchange rate fluctuations and the margins of exports," Working Papers 15_05, Motu Economic and Public Policy Research.
    3. Juan Delgado, 2008. "European Energy Markets: Moving in a Common Direction?," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    4. Yaniv Yedid-Levi & Stefanie Haller & Doireann Fitzgerald, 2016. "How Exporters Grow," 2016 Meeting Papers 499, Society for Economic Dynamics.
    5. Bas, Maria & Mayer, Thierry & Thoenig, Mathias, 2017. "From micro to macro: Demand, supply, and heterogeneity in the trade elasticity," Journal of International Economics, Elsevier, vol. 108(C), pages 1-19.
    6. Antoine Berthou & Lionel Fontagné, 2016. "Variable Trade Costs, Composition Effects and the Intensive Margin of Trade," The World Economy, Wiley Blackwell, vol. 39(1), pages 54-71, January.
    7. Heid, Benedikt & Larch, Mario, 2016. "Gravity with unemployment," Journal of International Economics, Elsevier, vol. 101(C), pages 70-85.
    8. Ernest Gnan & Mar Gudmundsson & Klaus Liebscher & Dietrich Domanski & Alexandra Heath & Juan Delgado & Walter Boltz & Birger Vikoren & Vasily Astrov & Stephan Barisitz & Simon-Erik Ollus & Ulrich Kohl, 2008. "Commodities, Energy and Finance," SUERF Studies, SUERF - The European Money and Finance Forum, number 2008/2 edited by Ernest Gnan & Mar Gudmundsson & Morten Balling, March.
    9. Ulrich Kohli, 2008. "Energy prices, inflation, and monetary policy," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    10. Dietrich Domanski & Alexandra Heath, 2008. "Financial investors and commodity markets," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    11. Frank Smets, 2008. "How should monetary policy take commodity and energy prices into account?," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    12. Veronica Rappoport & Philipp Schnabl & Daniel Paravisini, 2015. "Comparative Advantage and Specialization in Bank Lending," 2015 Meeting Papers 499, Society for Economic Dynamics.
    13. Klaus Liebscher, 2008. "Opening Remarks," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    14. Stephan Barisitz & Simon-Erik Ollus, 2008. "The Russian Non-Fuel Sector: Signs of Dutch Disease? Evidence from EU–25 Import Competition," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    15. Ernest Gnan & Már Gudmundsson, 2008. "Introduction, main findings, and some conclusions," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    16. Vasily Astrov, 2008. "The Russian Oil Fund(s): past performance and policy options," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    17. Yilmazkuday, Hakan, 2017. "Unifying Macro Elasticities in International Economics," Globalization and Monetary Policy Institute Working Paper 299, Federal Reserve Bank of Dallas.
    18. Birger Vikøren, 2008. "Norges Bank’s Experiences with the Organisation of the Government Pension Fund – Global," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    19. Salamat Ali, 2017. "Exchange Rate Effects on Agricultural Exports: Firm-level Evidence from Pakistan," Discussion Papers 2017-09, University of Nottingham, GEP.
    20. Maria Bas & Thierry Mayer & Mathias Thoenig, 2017. "From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01592899, HAL.
    21. Walter Boltz, 2008. "Energy Markets in Europe: The State of Play and Future Prospects," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    22. Li, Hongbin & Ma, Hong & Xu, Yuan, 2015. "How do exchange rate movements affect Chinese exports? — A firm-level investigation," Journal of International Economics, Elsevier, vol. 97(1), pages 148-161.

    More about this item

    Keywords

    Firm exports; Tariffs; Exchange rates; International elasticity puzzle;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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