DP8684 | Export dynamics and sales at home

Publication Date

01/12/2011

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Abstract

How do firms' sales interact across markets? Are foreign and domestic sales complements or substitutes? Using a large French firm-level database that combines balance-sheet and product-destination-specific export information over the period 1995-2001, we study the interconnections between exports and domestic sales. We identify exogenous shocks that affect the firms' demand on foreign markets to instrument yearly variations in exports. We use alternatively as instruments product-destination specific imports or tariffs changes, and large foreign shocks such as financial crises or civil wars. Our results show that exogenous variations in foreign sales are positively associated with domestic sales, even after controlling for changes in domestic demand. A 10% exogenous increase in exports generates a 1.5 to 3% increase in domestic sales in the short-term. This result is robust to various estimation techniques, instruments, controls, and sub-samples. It is also supported by the natural experiment of the Asian crisis in the late 1990's. We discuss various channels that may explain this complementarity.