Austerity and Exports

23 Pages Posted: 5 Apr 2016

See all articles by Rishav Bista

Rishav Bista

Marshall University - Center for Business and Economic Research

Josh Ederington

University of Kentucky - Department of Economics

Jenny Minier

University of Kentucky - Department of Economics

Brandon J. Sheridan

Elon University

Date Written: May 2016

Abstract

Recent papers have focused attention on the potential for expansionary austerity (i.e. that cutting budget deficits may increase growth in the short run). In this paper we investigate the impact of fiscal consolidation on trade using bilateral trade data. The use of bilateral trade data allows us to demonstrate three novel empirical results. First, while fiscal consolidation is associated with an increase in own‐country exports, it is also correlated to an equal extent with a decrease in foreign‐country exports (i.e. imports); indeed, simultaneous austerity has no statistically significant impact on bilateral trade. Second, the positive effect of austerity on exports disappears when trading partners share a common currency. Third, the increase in exports as a result of austerity is associated entirely with an increase in the range of goods exported (the extensive margin), at the expense of trade volume among existing trade relationships (the intensive margin).

Suggested Citation

Bista, Rishav and Ederington, Josh and Minier, Jenny and Sheridan, Brandon J., Austerity and Exports (May 2016). Review of International Economics, Vol. 24, Issue 2, pp. 203-225, 2016, Available at SSRN: https://ssrn.com/abstract=2759079 or http://dx.doi.org/10.1111/roie.12210

Rishav Bista (Contact Author)

Marshall University - Center for Business and Economic Research ( email )

1 John Marshall Drive
Huntington, WV 25755-2320
United States

Josh Ederington

University of Kentucky - Department of Economics ( email )

335 Business and Economics Building
Lexington, KY 40506
United States

Jenny Minier

University of Kentucky - Department of Economics ( email )

335 Business and Economics Building
Lexington, KY 40506
United States

Brandon J. Sheridan

Elon University ( email )

Elon, NC 27244
United States

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