Advertisement

Review of World Economics

, Volume 152, Issue 1, pp 107–125 | Cite as

Exports and domestic demand pressure: a dynamic panel data model for the euro area countries

  • Elena Bobeica
  • Paulo Soares Esteves
  • António RuaEmail author
  • Karsten Staehr
Original Paper

Abstract

The paper investigates the link between domestic demand pressure and exports by considering an error correction dynamic panel model for eleven euro area countries over the last two decades. The results suggest that there is a statistically significant substitution effect between domestic and foreign sales. Furthermore, this relationship appears to be asymmetric, as the link is much stronger when domestic demand falls than when it increases. Weakness in the domestic market translates into increased efforts to serve markets abroad, but, conversely, during times of boom, exports are not negatively affected by increasing domestic sales. This reorientation towards foreign markets was particularly important during the crisis period, and thus could represent a new adjustment channel to strong negative domestic shocks. The results have important policy implications, as this substitution effect between domestic and external markets might allow the euro area countries under stress to improve their trade outcomes with a relatively small downward pressure on domestic prices.

Keywords

Exports Domestic demand pressure Asymmetry 

JEL classification

C22 C50 F10 

References

  1. Allard, C. (2009). Competitiveness in Central-Europe: What has happened since EU accession? (IMF Working Paper 121). Washington, DC: International Monetary Fund.Google Scholar
  2. Altomonte, C., Sono, T., & Vandenbussche, H. (2013). Firm-level productivity and exporting: Diagnosing the role of financial constraints. In European Commission (Ed.), Product market review 2013: Financing the real economy. European Union: Brussels (chapter 2).Google Scholar
  3. Alvarez, J., & Arellano, M. (2003). The time series and cross-section asymptotics of dynamic panel data estimators. Econometrica, 71(4), 1121–1159.CrossRefGoogle Scholar
  4. Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58(2), 277–297.CrossRefGoogle Scholar
  5. Ball, R. J., Eaton, J. R., & Steuer, M. D. (1966). The relationship between United Kingdom export performance in manufactures and the internal pressure of demand. The Economic Journal, 76(303), 501–518.CrossRefGoogle Scholar
  6. Belke, A., Dobnik, F., & Dreger, C. (2011). Energy consumption and economic growth: New insights into the cointegration relationship. Energy Economics, 33(5), 782–789.CrossRefGoogle Scholar
  7. Belke, A., & Dreger, C. (2013). Current account imbalances in the euro area: Does catching up explain the development? Review of International Economics, 21(1), 6–17.CrossRefGoogle Scholar
  8. Belke, A., Oeking, A., & Setzer R. (2014). Exports and capacity constraints—A smooth transition regression model for six euro area countries (ECB Working Paper 1740). Frankfurt: European Central Bank.Google Scholar
  9. Bernard, A., & Wagner, J. (2001). Export entry and exit by German firms. Weltwirtschaftliches Archiv/Review of World Economics, 137(1), 105–123.CrossRefGoogle Scholar
  10. Breitung, J. (2000). The local power of some unit root tests for panel data. In B. Baltagi (Ed.), Nonstationary panels, panel cointegration, and dynamic panels, advances in econometrics (Vol. 15, pp. 161–178). Amsterdam: JAI Press.Google Scholar
  11. Ca’Zorzi, M., & Schnatz, B. (2007). Explaining and forecasting euro area exports: Which competitiveness indicator performs best? (ECB Working Paper 833). Frankfurt: European Central Bank.Google Scholar
  12. Christodoulopoulou, S., & Tkačevs, O. (2014). Measuring the effectiveness of cost and price competitiveness in external rebalancing of euro area countries. What do alternative HCIS tell us? (ECB Working Paper 1736). Frankfurt: European Central Bank.Google Scholar
  13. di Mauro, F., & Forster, K. (2008). Globalisation and the competitiveness of the euro area (ECB occasional paper 97). Frankfurt: European Central Bank.Google Scholar
  14. ECB (European Central Bank). (2013). Country adjustment in the euro area: Where do we stand? Monthly Bulletin, May, pp. 85–102Google Scholar
  15. Esteves, P. S., & Rua, A. (2013). Is there a role for domestic demand pressure on export performance? (ECB Working Paper 1594). Frankfurt: European Central Bank.Google Scholar
  16. Esteves, P. S., & Rua, A. (2015). Is there a role for domestic demand pressure on export performance?. Empirical Economics. doi: 10.1007/s00181-014-0908-5..
  17. Fagan, G., Henry, J., & Mestre, R. (2001). An area-wide model for the euro area (ECB Working Paper 42). Frankfurt: European Central Bank.Google Scholar
  18. Fagan, G., Henry, J., & Mestre, R. (2005). An area-wide model for the euro area. Economic Modelling, 22(1), 39–59.CrossRefGoogle Scholar
  19. Gros, D., Cinzia, A., Belke, A. H., Coutinho, L., & Giovannini, A. (2014). Implementation of the macroeconomic adjustment programmes in the euro area: State-of-play. Brussels: Centre for European Policy Studies.Google Scholar
  20. Hall, P. A. (2012). The economics and politics of the euro crisis. German Politics, 21(4), 355–371.CrossRefGoogle Scholar
  21. Hubrich, K., & Karlsson, T. (2010). Trade consistency in the context of the eurosystem projection exercises: An overview (ECB Occasional Paper 108). Frankfurt: European Central Bank.Google Scholar
  22. Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–74.CrossRefGoogle Scholar
  23. Impullitti, G., Irarrazabal, A., & Opromolla, L. D. (2013). A theory of entry into and exit from export markets. Journal of International Economics, 90(1), 75–90.CrossRefGoogle Scholar
  24. IMF (International Monetary Fund). (2013). External rebalancing in the euro area. IMF World Economic Outlook. October, (pp. 45–48).Google Scholar
  25. Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90(1), 1–44.CrossRefGoogle Scholar
  26. Levin, A., Lin, C. F., & Chu, C. S. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24.CrossRefGoogle Scholar
  27. Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(S1), 631–652.CrossRefGoogle Scholar
  28. Melitz, M. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695–1725.CrossRefGoogle Scholar
  29. Nickell, S. J. (1981). Biases in dynamic models with fixed effects. Econometrica, 49(6), 1417–1426.CrossRefGoogle Scholar
  30. Pedroni, P. (2004). Panel cointegration: Asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory, 20, 597–625.CrossRefGoogle Scholar
  31. Pisani-Ferry, J., Sapir, A., & Wolff, G. (2013). EU-IMF assistance to euro-area countries: An early assessment, Bruegel Blueprint, 779.Google Scholar
  32. Vannoorenberghe, G. (2012). Firm-level volatility and exports. Journal of International Economics, 86(1), 57–67.CrossRefGoogle Scholar

Copyright information

© Kiel Institute 2015

Authors and Affiliations

  • Elena Bobeica
    • 1
  • Paulo Soares Esteves
    • 2
  • António Rua
    • 3
    • 4
    Email author
  • Karsten Staehr
    • 5
  1. 1.European Central BankFrankfurtGermany
  2. 2.Office of the GovernorBanco de PortugalLisbonPortugal
  3. 3.Economics and Research DepartmentBanco de PortugalLisbonPortugal
  4. 4.Nova School of Business and EconomicsUniversidade Nova de LisboaLisbonPortugal
  5. 5.Eesti PankTallinn University of Technology TallinnEstonia

Personalised recommendations