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Table12: EectoftheAsiancrisisonFrenchrmsdomesticsales
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Dep. Var.
lnDomesticsales
Sample
All
All
All
Noimp.
Firmspresent
All
All
fromAsia
allyears
Asiancrisis
97 01
*Exposed
i
-0.034
a
-0.035
a
-0.025
b
-0.040
a
-0.036
a
(0.011) (0.011) ) (0.010)
(0.011)
(0.013)
lnExportsales
it
0.848b
0.488a
(0.427)
(0.160)
lnDomesticdemand
it
0.152
a
(0.017)
Observations
143515 143515 143515
130811
81088
143515
118077
Dummies
SectorYear
Estimation
FE
FE
FE
FE
FE
2SLS
2SLS
Instruments
Crisis
Crisis+Taris
Hansenp-value
118077
Kleibergen-Paapstat. /S-YCrit. val.(10%)
7.70/16.4
14.97/19.9
RobustStandarderrors,clusteredby industry,in parentheses.
c
signicant at10%;
b
signicantat5%;
a
signicantat1%. OLS S estimations
incolumns(1)to(5),and2SLSestimationsincolumns(6)and(7). Allestimationsincludermxedeectsand2-digitsectoryeardummies,
exceptcolumn (3)which includes3-digitsectoryear r dummies. Export salesinstrumented d by Asiancrisis
97 01
Exposed
i
incolumn (6),
andbyAsiancrisis
97 01
Exposed
i
and rm-specic tarisin column (7). . See e dataappendixformore details.
estimationofthedomesticsalesequation(1). Theseresultsconrmourpreviousndings: the
coecientoftheexportsvariableispositiveandsignicantwhentheAsianCrisis
97 01
*Exposed
i
variableisusedasinstrumentforexports,alone(column(5))ortogetherwithrm-specictaris
(column(6)).TheHansentestindicatesthatwecannotrejecttheoveridentifyingrestrictions.
38
5 Channelsoftransmission
5.1 Theoreticalmechanisms
Asmentionedintheintroduction,inmostinternationaltrademodels,aggregateoridiosyncratic
productivityshocks,togetherwithlocaldemandconditions,determinesimultaneouslythelevel
ofsalesineachmarket. However,exogenous s changesindemandconditionsinagivenmarket
have no o eect t on n the level l of f sales s in other markets: : in n these models, , the  coecient t in
thebaselineestimationisexpectedtobeequaltozero. Thisabstractsfrompotentialgeneral
equilibriumeectsarisingthroughrmselection. InmodelssuchasMelitz(2003)orDemidova
andRodrguez-Clare(2013),anincrease inforeign demandwill in uencedomesticsales of{
highproductivity{homermsasitpushessomedomestic{lowproductivity{rmsoutofthe
domesticmarket. This s results inlargerdomestic sales forallsurviving rms,everythingelse
equal. However,asweareconsideringshort-runeectsandincludingsectoryeardummiesin
ourspecication,we considerasveryunlikelythepossibility thatsuchmechanismsdrive our
results.
38
Thelargercoecients onexportsalesin columns (6) and(7)ofTable12maysuggestthat negativeforeign
shocks are more likely to o be transmitted d todomesticsales than positive ones. . The e symmetry of the comple-
mentarity is discussed intheonlineappendix, section 4. . Indeed, , we dond that the eect of negativeexport
variationsissignicantlylargerthantheeectofpositivechanges.
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Salesindierentmarketsmayberelated,however,duetotheexistenceofcostlinkagesacross
markets.Ingeneral,auniqueproductionprocessinvolveslabor,equipments,andinputsforthe
production ofasinglegoodthatwillbe soldindierentmarkets. . Anumberofrecent t trade
models(Vannoorenberghe,2012,Blumetal.,2013,AhnandMcQuoid,2012)featureincreasing
marginalcost re ectingcapacity constraints. . Thesecapacity y constraintscanbephysical,and
related to short-term rigidities s on n factor r markets (for r instance, onthe e French labor market,
many regulations s start binding from 50 0 employees { { see Garicano o et al., 2013) ) or nancial
marketsimperfections. Indeed,intheshort-term,rmsneedliquiditytofulllworkingcapital
requirements, i.e. . topurchase e capital, buy intermediates,or hire additionalworkers so as to
increase theirsalesinamarket. . Liquidityconstrainedrmsareexpectedtoundermine e their
production,i.e. their r productionlevelissub-optimal. . Inthe e contextofcapacityconstraints,
thesemodelspredictsubstitutionbetweensalesacrossmarkets: whenademandshock k aects
positively the protability y of the e export market relative e to the e domestic c one, rms want t to
expandexports.Thisincreasesthemarginalcost,andreducesdomesticsales.
Dierent predictions can be e obtained, , however, if changes s in n foreign demand conditions
distortthedegreeofcapacityconstraintsthatforcehomermstoproduceatsecondbest. In
particular, revenues generated by y additional l exports s can n be e used d by rms s to alleviate e their
liquidityconstraints.First,theadditionalprot owsgeneratedbyforeignsalescanbeusedby
rmstonancetheirdomesticoperations. Thistypeofliquidityshockhelpsrmstoalleviate
thenancialconstraintsandtogetcloser totheir optimalsize. . Thismechanismisconsistent
withmodelsofrmdynamicsfeaturingnancialfrictionssuchasCooleyandQuadrini(2001)
andKohnetal.(2012).
39
Inthelattermodel,afterentry,theadditionalprot owsgenerated
byexportingmakesrmslessreliantonexternalnance,whichallowsthemtoincreasethescale
oftheiroperations inthedomesticmarket. . Second,changesinforeigndemanddirectlyaect
therms’abilitytoobtainexternalnance,asthermscanusetheirsalesordersascollateral.
Third,variationsinthedemandaddressedtotherminforeignmarketsmightaectnancial
constraintsthroughreputationeects(withthebank orlender): : negativedemandshocks,for
instance,mightthereforebothdirectlylimittheliquidityavailabletothermandmakeaccess
toexternalnancemoredicultduetothesereputationspillovers.
Throughallthesemechanisms,positiveforeigndemandvariationsshiftstherm’smarginal
cost downward. . Conversely,drops s indemandwouldmake access toshort-runliquidity more
dicult, moving up the marginalcost t curve. . This s generates apositive relationshipbetween
foreigndemand and sales s at t home e through exports, and therefore explains s the e positive and
signicantsignofourestimatesof.Note,again,thatthisresultdoesnotexcludethepossibility
thatcapacityconstraintsareimportantinsomecases.Theyrathersuggestthattheseconstraints
donotdominateotherchannelsonaverage. Capacityconstraintsmightbelocallyimportant,
for certain rms or inspecic c sectors. . For r instance, , Garicano et t al. (2013), among others,
show inthe case of France that size-dependent regulations (mainly relatedto athreshold at
50employees)tendtolimitrms’sizeandcanthereforebeconsideredasintroducingcapacity
39
ThismechanismisalsoconsistentwithGreenawayetal.(2007),whondonapanelofUKmanufacturingrms
thatexporterssignicantlydisplaybetter nancialhealth thannon-exporters,preciselybecausenancialhealth
is improved byparticipation in exportingactivities. . In n our context, exogenous changes in export sales should
thereforedirectlyberelatedtotheprotabilityof therm,its short-runliquidity,andthereforeitscapacityto
hireadditionalworkers,investinnewequipments,orpurchaseinputs.
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constraints.Inourdata,weindeedndthatrmswhichareclosetothis50employeesthreshold
exhibitnosignicanteectofexogenouschangesinexportsondomesticsales(seeTableA.11
theonlineappendix). However,ourresultsshowthatonaverageinoursampleofrms,these
constraintsarenotlargeenoughtogeneratesubstitutionbetweensalesacrossmarkets.
Beyondthe costsofinputs,therelationshipbetweenexports anddomestic sales couldbe
potentially explainedby changes inphysicalproductivity. . On n the one hand, withincreasing
returns,largerexportscantrigger higherproductivity. . Withelasticdemand,this s increase of
rm’seciencyshouldpromotesalesathomeifitis-atleastpartially-re ectedinthepriceof
goodssoldinthedomesticmarket.Thismechanismwillbeobservediftheproductssoldbythe
rmintwodierentmarketsareproducedusingthesameinputs. Ariseinexportsmayalso
increasethescaleofdomesticproductionthrougheciencygainsrelatedtoexportingactivity-
theso-calledlearning-by-exportinghypothesis.
40
Theselearningeectsareprobablymorelikely
to be observed in the medium- to long-term, but t we e will discuss their r empiricalplausibility
below.Ontheotherhand,measuredproductivitycanalsochangeduetounobservedvariations
incapitalutilizationor laboreort (Basu,1996). . Thereis s indeedample evidencethat rms
donotfully adjust laborandcapitalalongthe businesscycle(thephenomenonofhoarding),
makingtheevolutionofproductivitypro-cyclical.Inthiscase,wedonotexpectdomesticsales
to be impactedthroughhigher eciency. . However, , betterfactor r utilizationcanimprovethe
rm’sprotability,whichmagniestheliquiditymechanismmentionedabove.
Wenowprovideevidencesuggestingthattheliquiditychannelisindeedempiricallyrelevant,
beforediscussingotherpotentialmechanismsattheendofthesection.
5.2 Evidenceoftheliquiditychannel
We explore this transmissionchannel in more details s inTables 13 3 and 14. . Atypical l proxy
for liquidity constraints usedby the nance literatureis rm’s size. . If f dependence onshort-
term liquidity y is s more e important for small rms, we expect the eect to decrease with rm
size. Incolumns(1)and(2)ofTable13,theexportsalesvariableisinteractedwiththeinitial
numberofemployeesoftherm(theinteractionisinstrumentedbytheinteractionbetweenour
baselineinstrumentandtheinitialsizeoftherm). Thecoecientoftheinteractionvariable
isnegativeandsignicant,i.e. smallerrmstendtobenetmorefromanexogenousincreasein
theirexportsthanlarger rms. . Thedomesticsalesofsmallrmsarethereforemoresensitive
to variations inexports revenues,whichmay possibly comefromtightershort-termliquidity
needs. For r the larger rms -of more than100employees -we cannot detect anysignicant
eectanymore.
Amoredirectwaytoassesstherelevanceoftheliquiditymechanismis tobuildrm-level
proxies of thedependenceuponshort-runliquidity. . Positive e interactions betweenthoseindi-
catorsandthelogofexportsales(stillinstrumentedbytheinteractionbetweenourbaseline
instrumentandthebeginning-of-periodindicator)willindicatethatrmswithhigherliquidity
needswilldisproportionatelytakeadvantagefromanexogenouspositiveexportshock,consis-
tentlywiththeabove-mentionedchannel.
40
SeeWagner(2007)forasurvey,andthestudiesbyBernardandJensen(1999),DeLoecker(2007)andPark
etal.(2010).
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Table13:Channelsoftransmission: rm-levelindicators
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Dep. Var.
lnDomesticsales
lnExportsales
it
0.277a
0.316a
0.077b
0.071b
0.108a
0.101a
0.131a
0.118a
0.103a
0.093a
(0.060) (0.071) (0.032) (0.032) (0.030) (0.028) (0.028) (0.025) (0.036) (0.036)
lnExportsales
it
Size
i0
-0.034-0.046a
(0.012) (0.014)
lnExportsales
it
WCR
i0
0.104b
0.109a
(0.042) (0.040)
lnExportsales
it
SFR
i0
0.261b
0.264b
(0.111) (0.108)
lnExportsales
it
(LTDebt/Tot. Debt)
i0
0.015
0.049
(0.055) (0.060)
lnExportsales
it
(STDebt/Tot.debt)
i0
0.043
c
0.050
b
(0.024) (0.024)
lnExportsales
it
exportratio
i0
0.594
a
0.494
a
0.435
a
0.513
a
0.474
a
(0.142)
(0.131)
(0.105)
(0.120)
(0.108)
lnDomesticdemand
it
0.119
a
0.124
a
0.118
a
0.122
a
0.110
a
0.112
a
0.117
a
0.123
a
0.118
a
0.122
a
(0.018) (0.018) (0.019) (0.019) (0.017) (0.017) (0.018) (0.019) (0.018) (0.018)
Observations
142536 142536 6 128356 128356 6 128372 128372 2 123870 123870 0 119156 119156
Kleibergen-Paapstat.
37.86
25.37
50.86
36.68
45.42
37.63
48.69
37.09
49.25
38.51
RobustStandard errors,clusteredbyindustry,inparentheses.
c
signicantat10%;
b
signicantat5%;
a
signicantat1%. 2SLSestimations.
All estimations include e rmxed eectsandsectoryear r dummies. . The e instrumentusedfor r exports is the e foreigndemand in HS6 products
exported bythe e rm asdened in the main text. . Size: : number r of employees. . WCR:working g capitalrequirement ratio; SFR: self-nancing
ratio;(LT Debt/Tot. . Debt): : long-term debtovertotaldebt;(STDebt /Tot. Debt): : short-termdebt t overtotal debt. Allthese e indicators
aretaken atthebeginningofthe period. . See e main textanddataappendixformore detailson thecomputation ofthesevariables. . Thecritical
value forthe weakinstruments testisbased ona 10% 2SLS biasatthe 5% signicance level,which is7.0 is allestimations. . exportratio
i0
is
demeaned.
Therstindicatorweuseisabeginning-of-periodmeasureofworkingcapitalrequirement
(WCR
i0
),denedastheworkingcapitalrequirementoverlong-termresources(equaltoequity
plus medium-and d long-term debt). . This s indicator r represents s the e need of f the e rm in terms
ofshort-run liquidity; a highvalueofWCR R implies that rmshavea higher needforshort-
termliquidity. Thesecondindicatoristheinitialself-nancingratio(SFR
i0
)thatis,retained
prots overlong-termresources. . This s indicatorgivesanindicationofthe volume of internal
funds that can be e mobilized quickly y by y the e rm m for funding short-term operations. . It t can
betherefore interpretedasanalternative indicator of the rm’s dicultytorely onexternal
nanceinordertoincreaseitsproductionandsales.Asexpected,columns(3)to(6)showthat
interactionsbetweenforeignsalesandbothindicatorsarepositiveandsignicant. Controlling
fortherm’sexportratio-whichispotentiallycorrelatedwithanyrm-specicindicator-does
notaltertheresults(columns (4)and(6)). . Notethattheexportshare e variableis demeaned
inthese estimations to ease the interpretationof the e non-interacted d export sales coecient.
Quantitatively,theseinteractionsarealsorelevant.InthecaseofWCR
i0
,theeectrangefrom
statisticallyinsignicantforthetoppercentileto0.25forthemostvulnerablerms.
41
Werepeattheseexercisesincolumn(7)to(10),whichusetwoindicatorsofdebt,theratios
oflong-term(LT)andshort-term(ST)overtotaldebt.Sincetheliquiditymechanismweexplore
41
Consistentlywiththeabovendings,FiguresA.2.(a)andA.2.(b)intheonlineappendixshowthesizeofthe
eect for four groups of rms denedaccordingto o the quartiles s of WCRand STdebtratios. . 90% % condence
intervalsaredepictedingreyaroundtheestimatedeect.Thepatternisclear: thehighertheneedforshort-run
liquidity,thehighertheeectofexogenouschangesinexportsondomesticsales.
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isessentiallyashort-runone,weshouldonlyobservesignicanceontheinteractionbetweenthe
STdebtratioandtheforeignsales.Thisisindeedwhatourestimatesshow: whileinteractions
withtheLTdebtratio(columns(7)and(8))areinsignicant,columns(9)and(10)highlight
thatthepositiveimpactofanexogenousexportshocksismagniedforrmswhosedebtexhibits
ahighershareofshort-termdebt. Theresultappearsstrengthenedwhenincludingtheinitial
exporttototalsalesratiooftherm(column(10)).Finally,notethatalltheseresultsarerobust
totheuseofaone-periodlagged(insteadofcontemporaneous)exogenouschangeinexportsin
theestimatedspecication(seeTableA.9intheonlineAppendix).
42
Intheseestimations,the
averageeectofchangesinexportsondomesticsalesislower,butsimilarheterogeneityisfound
acrossrmswithdierentshort-runliquidityneeds(inthecaseofWCR
i0
,thecoecientranges
fromniltoaround0.20).
Table18intheappendixpresentsanadditionalway totest the relevanceoftheliquidity
mechanism. Namely,wereplacethedependentvariablebyadirectmeasureofliquidity(cash
ow). Theoveralleectofexogenouschangesinexportsoncash owistheoreticallyunclear:
rmsmightusetheextraliquiditytonanceoperationsorkeepitasaninsuranceagainstfuture
badshocks. Wendincolumn(1) ) ofTable18that liquiditydo increasefollowingapositive
exogenous change inexports. . Onthe e other hand,we expect rmswhicharemore relianton
short-run liquidity to use directly y this liquidity y tofulll their r working capital l requirements.
Therefore,the coecientonexportsshouldbelower fortheserms. . Thisis s whatwe ndin
columns(2),(3)and(5),inwhichweagaininteractexportwithourrm-specicmeasuresof
dependenceuponshort-runliquidity. Similartoourpreviousresults,long-termdebtdoes s not
seemtomatter(column(4)). Finally,inunreportedregressionswefoundthatourinstruments
havealower eect onexportsintherst stagefor rmswhicharethemost dependent upon
shortrunliquidity(e.g. smallrmsandrmswithhighWCRratio). Thisisagainconsistent
withtheliquiditymechanism: liquidityconstraintsrmsmightnotbeabletotakeadvantageof
increasesindemandinforeignmarkets;however,whentheydomanagetodoso,thishasmore
eectontheirdomesticsales.
Columns(1)to(4) ofTable14replicatethemainestimatesinTable13,butusingsector-
specicindicatorsinsteadofrm-levelone. More e precisely,we follow amethodology akinto
RajanandZingales (1998)andreproduceourfour indicators of dependence uponshort-term
liquidityatthesectorallevel. Weexpectthatrmsoperatinginsectorswithahigherneedfor
short-termcapital,aremoresensitivetoexogenousvariationsofthecash oworexports.This
checkisdoneinordertoreduceendogeneityconcerns,since,asRajanandZingales(1998),our
identicationstrategyisbasedonsectoralheterogeneity,whichisnotaectedbyindividualrm
characteristics.Therefore,foreachofourfourindicatorsofdependenceonshort-termliquidity,
we simply compute the e median n at the e sectoral l level, and as before, interact t the latter with
the log of export sales. . Forcomparison n purposes, we alsoinclude inthese specicationsthe
sectoralmedianoftheexport-to-salesratio.
43
This setof indicatorsisindexedby k. . Results
42
Inthesimplestspecication(TableA.9,column(1)),theeectifpositivebutthecoecientissmall(0.036)
and statisticallyinsignicant(p-valueis0.18). . However,wecanseeincolumns(2)to(7)thatthelaggedeect
issignicantlyincreasingwith theinitialexportratioof therm,consistently withour previousndings. . The
domesticsalesofthemostexposedrms(thosewithanexportratioabovearound30%)aresignicantlyaected
bychangesinexports.
43
Asector is dened at the3-digit (NES 114) level, although our r results s arequalitatively unchanged when
usingabroader(2-digit) classication. . Allinteractedtermsareinstrumentedbyinteractionsbetweenourmain
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Table14: Channelsoftransmission:sector-specicindicators
(1)
(2)
(3)
(4)
(5)
Dep. Var.
lnDomesticsales
lnExportsales
it
-0.122
0.033
0.072
-0.139
0.058
(0.094) (0.125) ) (0.071) ) (0.126) (0.065)
lnExportsales
it
WCR
k
0.471b
(0.188)
lnExportsales
it
SFR
k
0.487
(1.514)
lnExportsales
it
LTDebt
k
-0.023
(0.484)
lnExportsales
it
STDebt
k
0.342b
(0.165)
lnExportsales
it
IRS
k
0.032
(0.044)
lnExportsales
it
exportratio
k
0.420
0.539
0.506
0.717
0.535
(0.341) (0.403) ) (0.375) ) (0.436) (0.422)
lnDomesticdemand
it
0.119a
0.118a
0.118a
0.120a
0.118a
(0.018) (0.018) ) (0.018) ) (0.018) (0.018)
Observations
143515 143515 143515 143515 143515
Kleibergen-Paapstat.
9.89
32.66
37.37
17.32
24.02
RobustStandard errors,clusteredbyindustry,inparentheses.
c
signicantat10%;
b
signicantat5%;
a
signicantat1%. 2SLSestimations.
All estimations include e rmxed eectsandsectoryear r dummies. . The e instrumentusedfor r exports is the e foreigndemand in HS6 products
exported by thermasdened inthe maintext. . WCR:workingcapitalrequirementratio; ; SFR:self-nancing ratio;(LTDebt/Tot. Debt):
long-termdebt overtotaldebt; (ST Debt/ Tot. . Debt): short-term m debt overtotaldebt; IRS:returnsto scale. . Allindicatorsare e industry-
specicmedians,exceptIRSwhich isadummywhichequals1iftheindustryexhibitsincreasingreturnstoscale. . Seemaintextandappendix
for more e detailson the computationof these variables.
are consistent t with h the e ones basedon n rm-level indicators: : rms s belonging g to o sectors s with
higher WCR R and d ST debt t benets disproportionately fromanexogenous increase inforeign
sales,supportingthethestoryofashort-runliquiditychannel.
5.3 Otherchannels: : discussion
Wementionedearlierthatourresultsmighttheoreticallybedrivenbychangesinproductivity.
Thecomplementaritybetweenexportsanddomesticsalesmayre ectthepresenceofincreasing
returnsinthesectorwherethermisoperating: iftherm’s s productiontechnologyexhibits
increasingreturns,apositivedemandshockontheforeignmarketwillincreasetheproduction
scaleanddecreaseaveragecost. IndeedwedondthatTFPincreaseswithexogenouschanges
inexports(seeTable19,column(7)andTableA.8insection5oftheonlineappendix).
44
Theincreasingreturnschannelcanbetestedbylookingatthedierencesacrosssectorsin
instrumentandthesectoralmedianoftheconsideredindicator.
44
ThesizeeectofchangesinexportsonTFPandinputsdisplayedinTableA.8isconsistentwiththenance-
investmentliterature(e.g.Fazzarietal.,1988orLove,2003)whondacash- owtoinvestmentelasticitybetween
0.1and0.3for recentperiods. . Ifinputs s arecommontobothforeign anddomesticproductions,thesenumbers
arealsoconsistentwiththeelasticityofdomesticsalestoexogenouschangesinexports,whichisaround0.15in
ourbaselinespecication.
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termsofeconomiesofscale.Namely,weestimateaproductionfunctionby3-digitsector(NES
114). Wheneverthesumofthelaborandcapitalcoecientsissignicantlylargerthan1,we
classifythesectoras anincreasingreturnssector(decreasingreturnsotherwise). . Theresults,
shownincolumn(5)ofTable14,failtoconrmtherelevanceoftheincreasingreturnschannel:
thecoecientiscorrectlysigned,butstatisticallyinsignicant.
TFPchangescouldhoweverbedrivenbyunobservedchangesinfactorutilizationalongcycle.
Iflaborandcapitalmarketswerefrictionless,adeclineinexportrevenueswouldhavenoeect
onrms’unitproductioncosts,astheywouldreducetheiruseoflaborandcapital.Conversely,
rms may choose not to adjust labororcapitalconsecutive to foreigndemandshocks,which
wouldthenaect thelevelof unit t costs, their productivity y andprice cost margins. . Results
reportedinTable19intheappendix,columns (1) to(4),indeedshowthatchangesinrms’
exports arenegatively relatedtochanges in n unit t labor and d capital costs: : a a decline inrms’
exports tends toincrease unit costs, , inparticular r for those rms havinga higher exports to
totalturnover ratio. . This s ndingconrmsthat rmsinour sampledonotfullyadjustlabor
andcapitalthroughoutthebusinesscycle. WealsoconrmthatobservedchangesinTFPare
causedbychangesinprice-costsmarginsratherthanbyimprovementsinphysicalproductivity
(columns (5) and(6) of inTable 19 inthe appendix). . Thus, , webelieve that t the increasing
returnschannelis unlikely toexplainourresults. . However,changes s intheprice-costmargins
contributetoimprovetheprotabilityoftherms,andtendtomagnifytheliquiditychannel.
6 Conclusions
Using a a large e rm-level l database on French h rms s combining g balance-sheet t and d destination-
specicexport informationoverthe period d 1995-2001,this s paper shows that rms’domestic
andexportsalesarecomplementarywhenexportsarepredictedbyexogenouschangesinforeign
demand. Achange e inforeigndemandconditions,whichisassociatedwithanincrease inthe
foreigndemandoftheproductssoldabroadbytheexporter,raisesdomesticsales.Thisimplies
thatshocksonforeignmarketscanbechanneledintothedomesticbusinesscyclethroughthe
complementaritybetweenrms’domesticandforeignsales.
Theseresultsareconrmedbyanumberofrobustnesschecks,inwhichweassessthevalidity
oftheempiricalanalysisthroughdierentspecications. Weusealternativelyas s instruments
forexportsalestheforeignimportsfortheproductrangeexportedbytherm,orforitscore
product, tari changes, or r large foreignshocks suchas civilwars. . We e take intoaccountthe
possibility that domestic andforeignmacroeconomic conditions may becorrelated. . We e also
controlfor the possibility that the resultmight be drivenby the correlationbetweenexports
andimportsforeachrm. Ourresultsarevalidincaseswheretheforeigndemandforrms’
productsisincreasingordecreasing.Finally,ouranalysisissupportedbythenaturalexperiment
oftheAsiancrisisinthelate1990’s.Estimationresultsshowthatrmsthatweremoreexposed
tothiscrisis throughtheirexportssueredadecreaseof theirdomesticsales as comparedto
rmsofthecontrolgroup.
Overall,thisrelationbetweendomesticandforeignsalesisatoddswiththeoreticalmodels
ininternationaltradewheredomesticandforeignsalesareonlyconnectedthroughexogenous
productivity, as in Melitz (2003). . Our r results rather r suggest t that exogenous s shocks s onthe
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foreignbusinesscyclewillre ectinthedomesticbusinesscyclethroughtherelationshipbetween
domestic andforeignsales. . This s result has many implications,for instance, , interms s ofthe
exchangeratepolicyortradepolicytransmissiontothedomesticeconomy.
Theprecisechannelof transmission, however, remains anavenuefor futureresearch. . We
provide evidencein the last sectionthat dependence on short-runliquidity,throughworking
capitalrequirement, maybea relevant t explanation. . This s channelis alsoconsistent withthe
factthatourresultisfoundtobestrongerforsmallrmsthanforlargeones. However,other
channelsmayberelevant,includingdemandsidemechanisms.Futureresearchshouldprobably
attempttodeterminethechannelof transmissionthatisprevalentinexplainingthis export-
domesticsalescomplementarity. Ifourresultsaremainlydrivenbyliquidityconstraints,they
alsohavepotentialinterestingimplicationsforthetransmissionofrealdemandshocks tothe
nancialsystemthroughrms’nancialhealth. Largenegative e shockssuchasthe Eurozone
crisiscouldmakeexportersmorenanciallyvulnerableandforcethemtodefaultontheirloans,
whichinturnmayaectthesolvabilityofthebankingsector.Exploringtheseaggregateindirect
eectsinmoredetailswouldbeaninterestingavenueforfutureresearch.
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