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Exporters and Shocks: Dissecting the International Elasticity Puzzle
Author(s)
Date Issued
2014-04
Date Available
2014-05-20T13:39:54Z
Abstract
Aggregate exports are not very responsive to real exchange rates, though they re-
spond strongly to trade liberalizations, a fact sometimes referred to as the International
Elasticity Puzzle. We use micro data on firms and exports for Ireland to dissect the
puzzle. Our identification strategy uses within-firm-year cross-market variation in real
exchange rates and tariffs to identify the responses of export participation, export rev-
enue and the product dimension of exporting to these variables. We show that (i) the
weak response of export revenue of long-time market participants to real exchange rates
is key to the behavior of aggregate exports, (ii) export participation also responds less
to real exchange rates than to tariffs, but this alone cannot explain the puzzle; and
(iii) the revenue response of long-time market participants cannot be accounted for by
product entry responses. Hence any model that can successfully account for the puzzle
needs to match the intensive margin responses of exporting firms.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Series
UCD Centre for Economic Research Working Paper Series
WP14/08
Web versions
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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