Domestic demand and exports: Evidence from Turkish firms

Özet

This study examines the relationship between real domestic sales and real exports for Turkishmanufacturing firms. Dynamic panel data estimations based on firm-level data for the period 2004e2014suggest that the two variables are substitutes. Other factors held constant, we estimate that a 10 percentdecline in real domestic sales is associated with around 2.7 percent increase in real exports, on average.However, this relationship varies among manufacturing sub-sectors which are defined according to 2-digit NACE classification. Results indicate that substitutability between domestic and foreign sales isstronger for export-oriented, low-leveraged and younger firms and firms that operate in sectors whoseexports are less import-dependent. Besides, the degree of substitution between the two variablessignificantly rises when domestic demand conditions are weak. This shows that exporter firms in theTurkish manufacturing industry can shift from domestic to international markets as a response to domesticdemand shocks.