Reports and papers
Economic Diplomacy, the Level of Development and Trade
In this paper we analyze how economic diplomacy influences bilateral trade flows. Particular attention is paid to two aspects which have not been considered in the empirical literature so far. Firstly, we study export promotion agencies, the network of embassies and consulates and the interaction between these government instruments. Secondly, we study how the level of development influences the impact of these instruments. We discuss the economic rationale for public intervention in international business activities and investigate whether market failure might provide an explanation and see what instruments are available to solve the problems at hand. An applied trade model is used for 36 countries in the year 2006 to focus on the effectiveness of the two main instruments of commercial and bilateral diplomacy: export promotion agencies and foreign missions, such as embassies. We demonstrate that commercial diplomacy is not a relevant trade-enhancing factor for intra-OECD (Organisation for Economic Co-operation and Development) trade, but that it is significant in the bilateral trade relationships of developing countries. Finally, some implications of our findings are considered, in particular regarding the optimal geography of the network of foreign missions.
ABOUT THE AUTHORS
Marie-Lise van Veenstra has an M.Sc. from Erasmus University Rotterdam. She is currently studying for an LL.M. in European Law at Leiden University. Her main area of study is international economic relations, in particular within the EU context. Her current research focuses on economic policy co-ordination within the euro zone. Marie-Lise was an intern at the Directorate General for International Economic Relationships of the Ministry of Economic Affairs in The Hague in 2008-9 where she conducted the research that resulted in this paper.
Mina Yakop has a B.Sc. in International Economics and an M.Sc. in Economics from the University of Amsterdam and is now a student of Financial Econometrics at that university. Mina was an intern at the Directorate General for International Economic Relationships of the Ministry of Economic Affairs in The Hague in 2007 where he conducted the research that resulted in this working paper.
Peter A.G. van Bergeijk is Professor of International Economics & Macroeconomics at the International Institute of Social Studies of Erasmus University, The Hague and Deputy Director of the Research School for Resource Studies for Development (CERES), Utrecht. The paper was written during his previous appointment as chief economist of the Directorate General for International Economic Relationships of the Ministry of Economic Affairs in The Hague.