Exports and Capacity Constraints: A smooth transition regression model for six euro-area countries. CEPS Working Document No. 395/May 2014

The significant gains in export market shares made in a number of vulnerable euro-area crisis countries have not been accompanied by an appropriate improvement in price competitiveness. This paper argues that, under certain conditions, firms consider export activity as a substitute for serving domestic demand. The strength of the link between domestic demand and exports is dependent on capacity constraints. Our econometric model for six euro-area countries suggests domestic demand pressure and capacity-constraint restrictions as additional variables of a properly specified export equation. As an innovation to the literature, we assess the empirical significance through the logistic and the exponential variant of the non-linear smooth transition regression model. We find that domestic demand developments are relevant for the short-run dynamics of exports in particular during more extreme stages of the business cycle. A strong substitutive relationship between domestic and foreign sales can most clearly be found for Spain, Portugal and Italy, providing evidence of the importance of sunk costs and hysteresis in international trade.

Images of Europeans: In-Group Trust and Support for European Integration. Jean Monnet/Robert Schuman Paper Series Vol. 14 No. 3, March 2014

Prior research on citizen support for European integration does not consider how individuals’ evaluations of European nationalities are associated with support. This paper fills this gap by developing a political cohesion model based on social identity theory. I claim that the probability of supporting integration increases with greater levels of trust in fellow Europeans, which assumes to reflect their positive images. Also, trust in eastern European Union nationalities has the highest impact on the probability for support, followed by trust in the southern nationalities, and then northern nationalities due to the eastern and southern nationalities relatively lower economic development. Controlling for various factors, the ordered logistic regression analysis of the European Election Study (2004) data support these claims.