This paper, using a rich dataset on Turkish firms for the 2005–2014 period, analyzes the relationship between firm-product sales in different markets to identify the channels that link exports and domestic sales. First, I use an instrumental variables strategy and establish that an exogenous 10% rise in exports increases a firm’s domestic sales by 2.6% on average. Second, I do an analogous exercise at the firm-product level, and find coefficients that are almost twice as large, hinting to the importance of product-specific scale effects. Moreover, I propose a novel approach to isolate the production versus non-production factors that influence firm dynamics by focusing on non-produced (or carry-along trade, CAT) exports. I find that CAT exports also affect domestic sales positively, suggesting that spillovers at the firm level such as the easing of liquidity constraints play a role. In the process, I reveal that export demand shocks influence firms’ expansion in terms of employment, wages, and investment. Finally, my quantification exercise indicates that export demand shocks explain about 1.4% of the annual variation in Turkish domestic sales on average. This figure, which shows heterogeneities at the sector level, rises to 4.6% during the Great Recession in 2009, when demand in Turkey’s key export partners collapsed.

Carry-along trade, Domestic sales, Export shocks, International trade,
Review of World Economics
Erasmus School of Economics

Erbahar, A. (Aksel). (2019). Two worlds apart? Export demand shocks and domestic sales. Review of World Economics. doi:10.1007/s10290-019-00364-z