Venting Out: Exports during a Domestic Slump

We study the relationship between domestic-demand shocks and exports using data for Spanish manufacturing firms in 2002-2013. Exploiting plausibly exogenous geographical variation caused by the Great Recession, we find that firms whose domestic sales declined by more experienced a larger increase in export flows, controlling for firms' supply determinants. This result illustrates the capacity of export markets to counteract the negative impact of local demand shocks. By structurally estimating a heterogeneous-firm model of exporting with nonconstant marginal costs of production, we conclude that these firm-level responses accounted for half of the spectacular increase in Spanish goods exports over the period 2009-2013. (JEL D22, E32, F14, L60)