Surviving the Perfect Storm: Exports, Fiscal Austerity, and Firm Heterogeneity
34 Pages Posted: 27 Dec 2019
Date Written: November 18, 2019
We show that shocks to domestic demand can have important effects on exports. Austerity measures implemented in southern European countries as a result of the 2010-2011 sovereign debt crisis were a large and unanticipated shock to government spending. We find that firms with higher ex-ante government exposure significantly increase their exports following such a shock. Older and larger firms are better able to substitute domestic sales with entry into export markets than younger and smaller firms. Higher-quality firms (i.e., firms with higher paid workers, higher productivity and more educated managers) are also more likely to start exporting. Unlike previous research on non-tradable industries, our results suggest that more mature firms drive the response of tradable industries to demand shocks.
Keywords: Fiscal austerity, Exports, Investment opportunities, Financial crises
JEL Classification: F10, G01, G30, H57, H60
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