The Effects of Export and R&D Strategies on Firms’ Markups in Downturns: the Spanish Case

The Spanish economy was one of those most hit by the Great Recession in the euro area. It suffered a huge decrease in gross domestic product (GDP), affecting especially internal demand, and in business and enterprises' research and development (R&D) expenditures, but experienced an important increase in exports as regard to the precrisis years (the so-called Spanish "miracle"). The incorporation of Spanish small and medium enterprises (SMEs) into exports has been spectacular since 2008. Further, this has coincided with a drop in markups (stronger for SMEs). Our main objective is uncovering whether SMEs' export and R&D participation strategies have aided in offsetting their fall in markups. We found that exporting helps SMEs to balance the decrease in markups, especially in downturns, and increases the likelihood to continue in operation. To the contrary, financial constraints and recessive demand have a negative impact on SMEs' continuing prospects. Finally, we found evidence that SMEs' export participation was a response to the fall in domestic demand (the "venting out" hypothesis).