Working Paper: CEPR ID: DP14640
Authors: Manuel Adelino; Paulo Fagandini; Miguel Ferreira; Francisco Queiro
Abstract: We examine how firms respond to domestic demand shocks using the large and unanticipated shock to government spending in European periphery countries during the 2010-2011 sovereign debt crisis. We find that firms with higher ex-ante exposure to government procurement contracts significantly increase their exports after the shock or exit. Older and larger firms are better able to substitute domestic sales with entry into export markets than younger and smaller firms. Firms with high-skill workers, high productivity and more educated managers are also more likely to start exporting. Our results suggest that mature and high-quality firms drive the response of tradable industries to domestic demand shocks.
Keywords: Fiscal Austerity; Exports; Investment Opportunities; Financial Crises
JEL Codes: F10; G01; G30; H57; H60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher government procurement contracts exposure (H57) | Lower domestic sales growth rate (F61) |
| Above-median government exposure (H59) | Lower domestic sales growth rate (F61) |
| Above-median government exposure (H59) | Increase in exports (F10) |
| Older and larger firms (L25) | More likely to start exporting (F10) |
| High-skill workers, high productivity, and more educated managers (J24) | More likely to begin exporting (F10) |