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Political risk and export promotion: Evidence from Germany

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  • Nestmann, Thorsten
  • Moser, Christoph
  • 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 Bank Research in its series Research Notes with number 23.

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Date of creation: 2006
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Handle: RePEc:zbw:dbrrns:23

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

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References

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  1. Salvador Gil & Rafael Llorca & José A. Martínez Serrano, 2008. "Measuring the impact of regional export promotion: The Spanish case," Papers in Regional Science, Wiley Blackwell, vol. 87(1), pages 139-146, 03.
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  4. Rose, Andrew K, 2005. "The Foreign Service and Foreign Trade: Embassies as Export Promotion," CEPR Discussion Papers 4953, C.E.P.R. Discussion Papers.
  5. Andrew Bernard & Joachim Wagner, 2001. "Export entry and exit by German firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(1), pages 105-123, March.
  6. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  7. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
  8. Elhanan Helpman, 1998. "The Structure of Foreign Trade," NBER Working Papers 6752, National Bureau of Economic Research, Inc.
  9. R Portes & H Rey, 2000. "The Determinants Of Cross-Border Equity Flows," CEP Discussion Papers dp0446, Centre for Economic Performance, LSE.
  10. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  11. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  12. Rienstra-Munnicha, Paul & Turvey, Calum G., 2002. "The Relationship Between Exports, Credit Risk And Credit Guarantees," 2002 Annual meeting, July 28-31, Long Beach, CA 19583, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  13. Alsem, K.J., 2003. "Insurability of export credit risks," Research Report 03F07, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  14. Andrew K. Rose, 2002. "Do We Really KNow that the WTO Increases Trade?," Working Papers 182002, Hong Kong Institute for Monetary Research.
  15. Dewit, Gerda, 2001. "Intervention in risky export markets: insurance, strategic action or aid?," European Journal of Political Economy, Elsevier, vol. 17(3), pages 575-592, September.
  16. Rienstra-Munnicha, Paul & Turvey, Calum G., 2002. "The Relationship Between Exports, Credit Risk And Credit Guarantees," Working Papers 34115, University of Guelph, Department of Food, Agricultural and Resource Economics.
  17. Funatsu, Hideki, 1986. "Export Credit Insurance and Moral Hazard," 商学討究 (Shogaku Tokyu), Otaru University of Commerce, vol. 36(3), pages 217-235.
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Citations

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Cited by:
  1. Jo VAN BIESEBROECK & Emily YU & Shenjie CHEN, 2011. "The impact of trade promotion services on Canadian exporter performance," Center for Economic Studies - Discussion papers ces11.21, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  2. Martin Gassebner & Pierre-Guillaume Méon, 2010. "Where do Creditor Rights Matter? Creditor Rights, Political Constraints, and Cross-Border M&A Activity," Working Papers CEB 10-019.RS, ULB -- Universite Libre de Bruxelles.
  3. 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, vol. 2010(3), pages 305-325.
  4. Fuchs, Michaela & Wohlrabe, Klaus, 2008. "Institutions, trade, and integration: what can be expected within the enlarged EU?," Dresden Discussion Paper Series in Economics 16/08, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  5. Felbermayr, Gabriel & Yalcin, Erdal, 2013. "Export credit guarantees and export performance: An empirical analysis for Germany," Munich Reprints in Economics 20348, University of Munich, Department of Economics.
  6. Zheng, J., 2012. "Essays on pensions, health expectancy and credit insurance," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5661243, Tilburg University.
  7. 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.
  8. Mathias Schmit & Thierry Denuit & Laurent Gheeraert & Cédric Warny, 2011. "Roles, Missions and Business Models of Public Financial Institutions in Europe," SUERF Studies, SUERF - The European Money and Finance Forum, number 2011/5.
  9. Sergey SVESHNIKOV & Victor BOCHARNIKOV, 2009. "Modeling Risk Of International Country Relations," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 4(4(10)_Win), pages 558-569.
  10. 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 2009,06, Deutsche Bundesbank, Research Centre.
  11. repec:cmj:journl:y:2013:i:27:clipicie is not listed on IDEAS
  12. Hayakawa, Kazunobu & Lee, Hyun-Hoon & Park, Donghyun, 2011. "Do export promotion agencies increase exports?," IDE Discussion Papers 313, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  13. Joel Stiebale, 2011. "Do Financial Constraints Matter for Foreign Market Entry? A Firm‐level Examination," The World Economy, Wiley Blackwell, vol. 34(1), pages 123-153, 01.
  14. Karel Janda & Eva Michalíková & Jiøí Skuhrovec, 2012. "Credit Support for Export: Econometric Evidence from the Czech Republic," Working Papers IES 2012/12, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2012.
  15. Christian Volpe Martincus & Jerónimo Carballo, 2010. "Export Promotion: Heterogeneous Programs and Heterogeneous Effects," IDB Publications 36759, Inter-American Development Bank.

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