Does domestic demand matter for firms' exports?

• Autor(a) principal: Esteves, Paulo Soares
• Data de Publicação: 2018
• Outros Autores: Portela, Miguel, Rua, António
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: https://hdl.handle.net/1822/60740
• topic: International trade; Firms; Exports; Domestic demand; Foreign demand; Panel data; Ciências Sociais::Economia e Gestão

The existence of a link between exports and domestic demand challenges the standard theoretical assumption in international trade models and carries out important policy implications. Being a small open economy and one of the hardest hit economies during the latest economic and financial crisis, Portugal is a natural case study for assessing the role of this channel, in particular given the large export market share gains that mitigated the negative effects on economic activity. A key difference of our empirical approach vis-`a-vis previous literature is that the estimated relationship between exports and domestic sales results directly from a monopolistic model of a firm selling to both domestic and external markets. Drawing on an appropriate estimation strategy, it is found a noteworthy negative relationship between domestic demand and firms’ exports covering the manufacturing sector over the period 2009–2016. This result holds for almost all industries although with a heterogeneous magnitude. Aditionally, there is also evidence that this effect is stronger for larger firms.