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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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Related research

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

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Find related papers by JEL classification:

• F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
• H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
• C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series

References

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Citations

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Cited by:

1. 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.
2. 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.
3. 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.
   
   • Van Biesebroeck, Johannes & Yu, Emily & Chen, Shenjie, 2010. "The impact of trade promotion services on Canadian exporter performance," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/267252, Katholieke Universiteit Leuven.
   • Johannes VAN BIESEBROECK & Emily YU & Shenjie CHEN, 2010. "The impact of trade promotion services on Canadian exporter performance," Center for Economic Studies - Discussion papers ces10.14, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
   • Van Biesebroeck, Johannes & Yu, Emily & Chen, Shenjie, 2011. "The impact of trade promotion services on Canadian exporter performance," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/318020, Katholieke Universiteit Leuven.
   • Chen, Shenjie & Van Biesebroeck, Johannes & Yu, Emily, 2011. "The Impact of Trade Promotion Services on Canadian Exporter Performance," CEPR Discussion Papers 8597, C.E.P.R. Discussion Papers.
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. 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.
6. 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.
7. 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.
8. Gabriel J. Felbermayr & Erdal Yalcin, 2011. "Export Credit Guarantees and Export Performance:An Empirical Analysis for Germany," Ifo Working Paper Series Ifo Working Paper No. 116, Ifo Institute for Economic Research at the University of Munich.
9. Sveshnikov, Sergey & Bocharnikov, Victor, 2009. "Modeling risk of international country relations," MPRA Paper 15745, University Library of Munich, Germany.
   
   • 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. Joel Stiebale, 2008. "Do Financial Constraints Matter for Foreign Market Entry? – A Firm-Level Examination," Ruhr Economic Papers 0051, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    
    • 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.
11. Christian Volpe Martincus & Jerónimo Carballo, 2010. "Export Promotion: Heterogeneous Programs and Heterogeneous Effects," IDB Publications 36759, Inter-American Development Bank.
12. 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.
13. 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).

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