Working Paper: CEPR ID: DP13380
Authors: Miguel Almunia; Pol Antras; David Lopez-Rodriguez; Eduardo Morales
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.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| demand-driven changes in domestic sales (F61) | export flows (F10) |
| domestic demand slump (D12) | increase in Spanish goods exports (F10) |
| domestic sales (F19) | export flows (F10) |
| reduction in domestic sales (F69) | increase in export flows (F10) |