Is there a role for domestic demand pressure on export performance?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The refereeing process of this paper has been coordinated by Editorial Board of the ECB Working Paper Series, led by Philipp Hartmann. Terms of use: Documents in EconStor mayThe paper is released in order to make the research of CompNet generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB, the ESCB, and of other organisations associated with the Network. AcknowledgementsThe authors would like to thank Carlos Robalo Marques, Luca Opromolla and Maximiano Pinheiro for comments and suggestions. The authors would also like to thank participants in the Competitiveness Research Network meeting held at the European Central Bank in December 2012 and Banco de Portugal seminar, where a preliminary version of the paper was presented. The analysis, opinions and findings of this paper represent the views of the authors, which are not necessarily those of the Banco de Portugal. Paulo Soares EstevesBanco de Portugal; e-mail: pmesteves@bportugal.pt António RuaBanco de Portugal; e-mail: antonio.rua@bportugal.pt AbstractTraditionally, exports behavior is modeled only as a function of the foreign demand and the real exchange rate. However, it is by now widely acknowledged that these variables are not able to fully explain exports developments. This paper suggests considering domestic demand pressure as an additional variable, revisiting its economic rationale and assessing its empirical importance. In particular, we consider the Portuguese case and find that domestic demand developments are relevant for the short-run dynamics of exports. Moreover, it is found that this relationship is asymmetric, being stronger and more significant when domestic demand is falling than when it is increasing.Keywords: Exports; Domestic Demand Pressure; Error Correction Models; Asymmetry.JEL classification: C22, C50, F10.1 Non-Technical SummaryTraditionally, exports behavior is modeled only as a function of the foreign demand and the real exchange rate, i.e. considering demand factors. However, it is by now widely acknowledged that traditional variables are not able to fully explain exports developments.Assuming some substitutability between foreign and domestic sales, this paper suggests domestic demand pressure as an additional explanatory variable. Domestic conditions can influence firms willingness or ability to supply exports ...

Determinants of manufacturing industry exports in European Union member states: a panel data analysis

“…Moreover, as opposed to most of the research modelling real exports mostly on foreign income and relative export prices, we also include the variables of industrial production and labour cost in order to capture production capacity and labour market effects. Additionally, in line with some previous literature (Esteves & Rua, 2013), this paper considers domestic demand as an additional explanatory variable.…”

“…2. Namely, Esteves and Rua (2013) found that besides external demand and real exchange rate, the domestic demand behaviour also appears highly significant and relevant for modelling the short-run dynamics of Portuguese exports. 3.…”

Domestic demand, capacity constraints and exporting dynamics: Empirical evidence for vulnerable euro area countries

“…These studies identified a significant negative effect of domestic demand pressure on exports for different countries, among them the United Kingdom, the United States, Germany, Spain, Israel, Turkey, Morocco and India. More recently, Esteves and Rua (2013) have implemented these considerations for Portugal. Our study extends the previous literature by focusing on five euro area countries with current account deficits over previous years, applying a set of non-linear econometric procedures not yet utilised in this context before.…”

On the Suitability of Alternative Competitiveness Indicators for Explaining Real Exports of Advanced Economies

“…For a large sample of 60 economies, however, International Monetary Fund (2015) finds little evidence for the rise of global value chains having led to a disconnect between exchange rates and trade. Esteves and Rua (2015) consider the inclusion of domestic demand pressure as an additional variable in an export equation for Portugal. Christodoulopoulou and Tkačevs (2015), however, report only limited evidence for a domestic demand impact on exports.…”