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Political risk and export promotion: evidence from Germany

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  • Moser, Christoph
  • Nestmann, Thorsten
  • Wedow, Michael

Abstract

Political risk represents an important hidden transaction cost that reduces international trade. This paper investigates the claim that German public export credit guarantees (Hermes guarantees) mitigate this friction to trade flows and hence promote exports. We employ an empirical trade gravity model, where we explicitly control for political risk in the importing country in order to evaluate the effect of export guarantees. The idea behind export promotion through public export credit agencies (ECAs) is that the private market is unable to provide adequate insurance for all risks associated with exports. As a consequence, firms' export activities are limited in the absence of insurance provision. Using a novel data set on guarantees we estimate the effect of guarantees in a static and dynamic panel model. We find a statistically and economically significant positive effect of public export guarantees on exports which indicates that export promotion is indeed effective. Furthermore, political risk turns out to be a robust determinant of exports and hence should be taken into account in any empirical model of trade. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2006,36.

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Date of creation: 2006
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Handle: RePEc:zbw:bubdp1:5110

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Keywords: public export credit guarantees; political risk; panel regression;

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References

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Cited by:
  1. repec:cmj:journl:y:2013:i:27:clipicie is not listed on IDEAS
  2. Fuchs, Michaela & Wohlrabe, Klaus, 2008. "Institutions, trade, and integration: what can be expected within the enlarged EU?," Dresden Discussion Paper Series in Economics, Dresden University of Technology, Faculty of Business and Economics, Department of Economics 16/08, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  3. Mathias Schmit & Thierry Denuit & Laurent Gheeraert & Cédric Warny, 2011. "Roles, Missions and Business Models of Public Financial Institutions in Europe," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum, SUERF - The European Money and Finance Forum.
  4. Karel Janda & Eva Michalikova & Jiri Skuhrovec, 2012. "Credit Support for Export: Evidence from the Czech Republic," CERGE-EI Working Papers wp461, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  5. Karel Janda & Eva Michalíková & Věra Potácelová, 2010. "Gravity and Fiscal Models of Government Support of Export Credit in the Czech Republic," Politická ekonomie, University of Economics, Prague, University of Economics, Prague, vol. 2010(3), pages 305-325.
  6. Zheng, J., 2012. "Essays on pensions, health expectancy and credit insurance," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-5661243, Tilburg University.
  7. Jo VAN BIESEBROECK & Emily YU & Shenjie CHEN, 2011. "The impact of trade promotion services on Canadian exporter performance," Center for Economic Studies - Discussion papers, Katholieke Universiteit Leuven, Centrum voor Economische Studiën ces11.21, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  8. Felbermayr, Gabriel & Yalcin, Erdal, 2013. "Export credit guarantees and export performance: An empirical analysis for Germany," Munich Reprints in Economics, University of Munich, Department of Economics 20348, University of Munich, Department of Economics.
  9. Sveshnikov, Sergey & Bocharnikov, Victor, 2009. "Modeling risk of international country relations," MPRA Paper 15745, University Library of Munich, Germany.
  10. Martin Gassebner & Pierre-Guillaume Méon, 2010. "Where do Creditor Rights Matter? Creditor Rights, Political Constraints, and Cross-Border M&A Activity," Working Papers CEB, ULB -- Universite Libre de Bruxelles 10-019.RS, ULB -- Universite Libre de Bruxelles.
  11. Hayakawa, Kazunobu & Lee, Hyun-Hoon & Park, Donghyun, 2011. "Do export promotion agencies increase exports?," IDE Discussion Papers, Institute of Developing Economies, Japan External Trade Organization(JETRO) 313, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  12. Joel Stiebale, 2011. "Do Financial Constraints Matter for Foreign Market Entry? A Firm‐level Examination," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 34(1), pages 123-153, 01.
  13. Harald Badinger & Thomas Url, 2014. "Users and Effects of Austrian Export Credit Guarantees," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 15(3), pages 39-44, 08.
  14. Völz, Manja & Wedow, Michael, 2009. "Does banks size distort market prices? Evidence for too-big-to-fail in the CDS market," Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank, Research Centre 2009,06, Deutsche Bundesbank, Research Centre.
  15. Christian Volpe Martincus & Jerónimo Carballo, 2010. "Export Promotion: Heterogeneous Programs and Heterogeneous Effects," IDB Publications 36759, Inter-American Development Bank.
  16. Karel Janda & Eva Michalíková & Jiøí Skuhrovec, 2012. "Credit Support for Export: Econometric Evidence from the Czech Republic," Working Papers IES, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies 2012/12, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2012.
  17. Bank for International Settlements, 2014. "Trade finance: developments and issues," CGFS Papers, Bank for International Settlements, number 50.

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