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Political Risk and Export Promotion: Evidence from Germany

Listed author(s):
  • Christoph Moser
  • Thorsten Nestmann
  • Michael Wedow

Political risk represents an important hidden transaction cost that reduces international trade. This paper investigates the claim that public export credit 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. 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 an important obstacle for exports and hence should be taken into account in any empirical model of trade. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 31 (2008)
Issue (Month): 6 (June)
Pages: 781-803

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Handle: RePEc:bla:worlde:v:31:y:2008:i:6:p:781-803
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  1. Alsem, K.J., 2003. "Insurability of export credit risks," Research Report 03F07, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  2. Paul Rienstra-Munnicha & Calum G. Turvey, 2002. "The Relationship between Exports, Credit Risk and Credit Guarantees," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 50(3), pages 281-296, November.
  3. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
  4. repec:dgr:rugsom:03f07 is not listed on IDEAS
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  8. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
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  15. 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 474-481, August.
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  17. 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, March.
  18. Peter Egger & Michael Pfaffermayr, 2005. "Estimating Long and Short Run Effects in Static Panel Models," Econometric Reviews, Taylor & Francis Journals, vol. 23(3), pages 199-214.
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