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The effect of foreign service on trade volumes and trade partners

Author

Listed:
  • Rubén Segura-Cayuela

    () (Banco de España)

  • Josep M. Vilarrubia

    () (Banco de España)

Abstract

It has been emphasized that international promotion activities such as state visits or the presence of embassies, consulates and export promotion agencies help foster trade when there are search costs and/or uncertainty. In this paper we try to disentangle the differential effect that foreign service (embassies and consulates) has on both the establishment of trade links with countries, and the effect on trade volumes with already existing trading partners (the extensive and intensive margins at the country level). Using the estimation procedure suggested by Helpman, Melitz and Rubinstein (2007) and a cross-section of 21 exporters and 162 importers as in Rose (2005), we find that the presence of a foreign service office in a given country increases the probability of trading with that partner between 11% and 18%, but that it has no effect on the volume of trade with already existing trading partners. We then proceed to evaluate the importance of the extensive margin at the sectoral level, finding that these probabilities are substantially larger for more differentiated sectors.

Suggested Citation

  • Rubén Segura-Cayuela & Josep M. Vilarrubia, 2008. "The effect of foreign service on trade volumes and trade partners," Working Papers 0808, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:0808
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/08/Fic/dt0808e.pdf
    File Function: First version, April 2008
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    References listed on IDEAS

    as
    1. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    3. Lederman, Daniel & Olarreaga, Marcelo & Payton, Lucy, 2006. "Export Promotion Agencies: What Works and What Doesn't," CEPR Discussion Papers 5810, C.E.P.R. Discussion Papers.
    4. Fernández-Val, Iván, 2009. "Fixed effects estimation of structural parameters and marginal effects in panel probit models," Journal of Econometrics, Elsevier, vol. 150(1), pages 71-85, May.
    5. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    6. Josep M Vilarrubia & Rubén Segura-Cayuela, 2008. "Uncertainty and entry into export markets," 2008 Meeting Papers 661, Society for Economic Dynamics.
    7. Juan Ruiz & Josep M. Vilarrubia, 2007. "The wise use of dummies in gravity models: export potentials in the Euromed region," Working Papers 0720, Banco de España;Working Papers Homepage.
    8. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 441-487.
    9. Andrew K. Rose, 2007. "The Foreign Service and Foreign Trade: Embassies as Export Promotion," The World Economy, Wiley Blackwell, vol. 30(1), pages 22-38, January.
    10. Feenstra, Robert C, 2002. "Border Effects and the Gravity Equation: Consistent Methods for Estimation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 491-506, December.
    11. James E. Rauch, 1996. "Trade and Search: Social Capital, Sogo Shosha, and Spillovers," NBER Working Papers 5618, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Salvador Gil-Pareja & Rafael Llorca-Vivero & José Martínez-Serrano & Francisco Requena-Silvente, 2015. "Regional export promotion offices and trade margins," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(1), pages 145-167, February.
    2. Santana-Gallego, María & Ledesma-Rodríguez, Francisco J. & Pérez-Rodríguez, Jorge V., 2016. "International trade and tourism flows: An extension of the gravity model," Economic Modelling, Elsevier, vol. 52(PB), pages 1026-1033.
    3. Pedro Albarran & Raquel Carrasco & Adelheid Holl, 2013. "Domestic transport infrastructure and firms’ export market participation," Small Business Economics, Springer, vol. 40(4), pages 879-898, May.
    4. Bagir, Yusuf, 2017. "Impact of the Presence of Foreign Missions on Trade: Evidence from Turkey," MPRA Paper 80845, University Library of Munich, Germany.
    5. Dan Ciuriak, "undated". "The Impact of Diplomatic Representation Abroad on Canada’s Exports," e-briefs 173, C.D. Howe Institute.
    6. repec:eee:quaeco:v:64:y:2017:i:c:p:12-21 is not listed on IDEAS
    7. Yakop, M. & van Bergeijk, P.A.G., 2009. "The weight of economic and commercial diplomacy," ISS Working Papers - General Series 18715, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    8. repec:bla:worlde:v:40:y:2017:i:2:p:336-368 is not listed on IDEAS
    9. Moons, S.J.V. & van Bergeijk, P.A.G., 2013. "A meta-analysis of economic diplomacy and its effect on international economic flows," ISS Working Papers - General Series 50074, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    10. Filippo Vergara Caffarelli & Giovanni Veronese, 2013. "Italy�s system for supporting internationalization," Questioni di Economia e Finanza (Occasional Papers) 196, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    Keywords

    foreign service; uncertainty; extensive margin; intensive margin; gravity;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements

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