On Domestic Demand and Export Performance in the Euro Area Countries: Does Export Concentration Matter?

16 Pages Posted: 19 Jun 2016

See all articles by Paulo Soares Esteves

Paulo Soares Esteves

Bank of Portugal - Economic Research Department

Elvira Prades Illanes

Banco de España

Multiple version iconThere are 2 versions of this paper

Date Written: June 17, 2016

Abstract

During economic downturns, weak domestic demand developments seem to be an additional driver of exports, as firms increase their efforts to serve markets abroad to compensate the fall in domestic sales. This may constitute an additional mechanism adjustment for the euro area countries where real exchange rate variations are limited by the common currency itself and the present low inflation environment. However, this substitution effect between domestic and foreign sales could be different across euro area members. This paper uses panel data techniques to assess the role of the export structure in explaining these differences. Building a novel indicator for product concentration, the results suggest that domestic demand developments are more relevant to explain exports in countries with a lower product concentration index (that is, more diversified exports). This contributes to explain why euro area countries under stress registered different economic performance during the most recent years.

Keywords: exports, domestic demand pressures, external adjustment

JEL Classification: C22, E03, F10

Suggested Citation

Soares Esteves, Paulo and Prades Illanes, Elvira, On Domestic Demand and Export Performance in the Euro Area Countries: Does Export Concentration Matter? (June 17, 2016). ECB Working Paper No. 1909. Available at SSRN: https://ssrn.com/abstract=2797173

Paulo Soares Esteves (Contact Author)

Bank of Portugal - Economic Research Department ( email )

R. do Ouro, 27
Lisboa, 1100-150
Portugal

Elvira Prades Illanes

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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