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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 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.

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Paper provided by School of Economics, University College Dublin in its series Working Papers with number 201408.

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Date of creation: Apr 2014
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Handle: RePEc:ucn:wpaper:201408
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  1. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 635-654.
  2. Samuel S. Kortum & Jonathan Eaton & Costas Arkolakis, 2011. "Staggered Adjustment and Trade Dynamics," 2011 Meeting Papers 1322, Society for Economic Dynamics.
  3. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151 - 1199.
  4. Ilke Van Beveren & Andrew B. Bernard & Hylke Vandenbussche, 2012. "Concording EU Trade and Production Data over Time," NBER Working Papers 18604, National Bureau of Economic Research, Inc.
  5. Jaromir B. Nosal & Lukasz A. Drozd, 2007. "Understanding International Prices: Customers as Capital," 2007 Meeting Papers 755, Society for Economic Dynamics.
  6. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-Market, Trade Costs, and International Relative Prices," American Economic Review, American Economic Association, vol. 98(5), pages 1998-2031, December.
  7. Baldwin, Richard, 1988. "Hyteresis in Import Prices: The Beachhead Effect," American Economic Review, American Economic Association, vol. 78(4), pages 773-85, September.
  8. 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.
  9. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2007. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," Econometrica, Econometric Society, vol. 75(3), pages 837-873, 05.
  10. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," NBER Working Papers 12782, National Bureau of Economic Research, Inc.
  11. Campa, Jose M., 2000. "Exchange rates and trade: How important is hysteresis in trade?," IESE Research Papers D/427, IESE Business School.
  12. Andrew B. Bernard & Renzo Massari & Jose-Daniel Reyes & Daria Taglioni, 2014. "Exporter Dynamics, Firm Size and Growth, and Partial Year Effects," NBER Working Papers 19865, National Bureau of Economic Research, Inc.
  13. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  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. repec:oup:qjecon:v:127:y:2012:i:1:p:437-492 is not listed on IDEAS
  16. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-level Productivity…For Some Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1051-1099.
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