Exporters and Shocks: Dissecting the International Elasticity Puzzle, 2015


Joint with Stefanie Haller (2015). Appendix

Aggregate exports are not very responsive to real exchange rates, though they respond 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 document the aspects of firm behavior that account for the puzzle. We show that (i) export participation is unresponsive to real exchange rates, and increases only modestly in response to tariff reductions; (ii) export revenue conditional on participation is inelastic with respect to real exchange rates but is very elastic indeed with respect to tariffs, and it is this which accounts primarily for the behavior of aggregate exports (iii) this response of export revenue conditional on participation is not due primarily to product entry and exit. Hence any model that can successfully account for the International Elasticity Puzzle needs to match the intensive margin responses of exporting firms.