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Do Default Loss Risks Matter for Arab Exports? Evidence from a Gravity Modelling Approach

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  • Ben Jelili Riadh

    (Research & Country Risk Analysis Department, The Arab Investment and Export Credit Guarantee Corporation “DHAMAN”, Arab Organizations Headquarters Building, P.O. Box 23568, Safat 13096, State of Kuwait)

Abstract

In the literature, it has been common to use credit risk scores to investigate impacts of external sources of risk and political institutions on foreign investment location choice-decisions. However, only a few studies have specifically examined the relationship between importing country’s credit risk scores and exports. Side stepping the limited availability of statistics on ECAs activities in the Arab countries, this paper investigates empirically the relationship between merchandise exports and credit scores of importing countries. Based on a gravity equation augmented with the risks of default on international payments, measured by intra-country risk ratings, the principal contribution of the present research is to scrutinize the impact of commercial and political risks on merchandise trade in the Arab region. The findings suggest that in the absence of insurance contracts against the risk of defaulting payments, firms are more likely to export to countries with higher prior probabilities to secure payments. It logically follows that provisions of export credit guarantees well targeted towards reducing buyer risks are likely to boost-up exports.

Suggested Citation

  • Ben Jelili Riadh, 2020. "Do Default Loss Risks Matter for Arab Exports? Evidence from a Gravity Modelling Approach," Review of Middle East Economics and Finance, De Gruyter, vol. 16(3), pages 1-22, December.
    • Handle: RePEc:bpj:rmeecf:v:16:y:2020:i:3:p:22:n:1
    DOI: 10.1515/rmeef-2019-0013
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    More about this item

    Keywords

    export; export credit insurance; default risk; Arab countries; gravity model;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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