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Exports and capacity constraints - a smooth transition regression model for six euro area countries

Author

Listed:
  • Belke, Ansgar
  • Oeking, Anne
  • Setzer, Ralph
Abstract
This paper argues that, under certain conditions, firms consider export activity as a substitute of serving domestic demand. Our econometric model for six euro area countries suggests domestic demand pressure and capacity constraint restrictions as additional variables of a properly specified export equation. As an innovation to the literature, we assess the empirical significance through the logistic and the exponential variant of the non-linear smooth transition regression model. We find that domestic demand developments are relevant for the short-run dynamics of exports in particular during more extreme stages of the business cycle. A strong substitutive relationship between domestic and foreign sales can most clearly be found for Spain, Portugal and Italy providing evidence of the importance of sunk costs and hysteresis in international trade. JEL Classification: F14, C22, C50, C51, F10

Suggested Citation

  • Belke, Ansgar & Oeking, Anne & Setzer, Ralph, 2014. "Exports and capacity constraints - a smooth transition regression model for six euro area countries," Working Paper Series 1740, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20141740
    Note: 1128184
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Belke, Ansgar & Kronen, Dominik, 2017. "Exchange rate bands of inaction and hysteresis in EU exports to the global economy: The role of uncertainty," Ruhr Economic Papers 695, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Elena Bobeica & Paulo Esteves & António Rua & Karsten Staehr, 2016. "Exports and domestic demand pressure: a dynamic panel data model for the euro area countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 107-125, February.
    3. Ansgar Belke & Dominik Kronen, 2016. "Exchange rate bands of inaction and play-hysteresis in Greek exports to the Euro Area, the US and Turkey: sectoral evidence," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(2), pages 349-390, May.
    4. Ansgar Belke & Daniel Gros & Alcidi Cinzia & Leonor Coutinho & Alessandro Giovannini, 2014. "Exit State-of-play in Implementing Macroeconomic Adjustment Programmes in the Euro Area," ROME Working Papers 201405, ROME Network.
    5. Esteves, Paulo Soares & Prades, Elvira, 2018. "Does export concentration matter in economic adjustment programs? Evidence from the euro-area," Journal of Policy Modeling, Elsevier, vol. 40(2), pages 225-241.
    6. Afsin Sahin, 2019. "Loom of Symmetric Pass-Through," Economies, MDPI, vol. 7(1), pages 1-25, February.
    7. JaeBin Ahn & Alexander F. McQuoid, 2017. "Capacity Constrained Exporters: Identifying Increasing Marginal Cost," Economic Inquiry, Western Economic Association International, vol. 55(3), pages 1175-1191, July.
    8. Soares Esteves, Paulo & Prades, Elvira, 2016. "On domestic demand and export performance in the euro area countries: does export concentration matter?," Working Paper Series 1909, European Central Bank.
    9. Álvarez López, M.ª Elisa & Vega Crespo, Josefa, 2017. "La fortaleza competitiva de la economía española/The Competitive Strength of the Spanish Economy," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 35, pages 7-34, Enero.
    10. Gros, Daniel & Alcidi, Cinzia & Belke, Ansgar & Coutinho, Leonor & Giovannini, Alessandro, 2014. "State-of-Play in Implementing Macroeconomic Adjustment Programmes in the Euro Area," Ruhr Economic Papers 482, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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    More about this item

    Keywords

    domestic demand; exports; hysteresis; smooth transition models; sunk costs;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F10 - International Economics - - Trade - - - General

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