Rotterdam Brown Bag Seminars General Economics

Aksel Erbahar (Erasmus University Rotterdam)
Wednesday, 19 April 2017


Traditional heterogenous firms and trade models such as Melitz (2003) predict no causal relationship between firms’ exports and domestic sales. This paper, using a rich dataset on Turkish firms, empirically examines whether exogenous export demand shocks influence firms’ domestic sales in a country where firms’ set of exported products differ substantially from their production, a phenomenon coined as Carry-Along Trade (CAT). I use an instrumental variables strategy and find that an exogenous doubling of exports increases domestic sales of a firm by 20 percent on average. A battery of sensitivity analyses using different clustering strategies, weights, and multiple instruments show that results are robust. Digging deeper, I separate foreign sales into produced versus CAT exports to identify the channel that links firms’ sales in different markets. In the process, I provide stylized facts that reveal the discrepancies between firms’ domestic production and exports at the product level.