Series: Working Papers. 1844.
Author: Miguel Almunia, Pol Antràs, David López-Rodríguez and Eduardo Morales.
Topics: Non-financial corporations, businesses | International trade | Quantitative methods | Competitiveness | Prices and margins | Inflation.
Published in: American Economic Review, Volume 111, Issue 11, pp 3611-62, November 2021
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Abstract
We exploit plausibly exogenous geographical variation in the reduction in domestic demand
caused by the Great Recession in Spain to document the existence of a robust, within-firm
negative causal relationship between demand-driven changes in domestic sales and export
flows. Spanish manufacturing firms whose domestic sales were reduced by more during
the crisis observed a larger increase in their export flows, even after controlling for firms’
supply determinants (such as labor costs). This negative relationship between demand-driven
changes in domestic sales and changes in export flows illustrates the capacity of export markets to counteract the negative impact of local demand shocks. We rationalize our findings through a standard heterogeneous-firm model of exporting expanded to allow for non-constant marginal costs of production. Using a structurally estimated version of this model, we conclude that the firm-level responses to the slump in domestic demand in Spain could well have accounted for around one-half of the spectacular increase in Spanish goods exports (the so-called “Spanish export miracle”) over the period 2009-13.