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Does economic diplomacy influence international trade? Evidence from Tanzania

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  • Mgeni Msafiri
  • Vincent Leyaro

Abstract

Diplomatic relations have potential to enhance international trade by minimizing potential risks that firms encounter in their foreign operations, especially for developing countries. This has been a driving force for government intervention in international trade and investment through economic diplomacy. Using bilateral trade data for the period 1997 – 2019, this study examines the impact of economic diplomacy measured by the presence of embassies in Tanzania and in importer countries on Tanzanian exports and imports. The study uses augmented Pseudo Poisson Maximum Likelihood estimation to account for large proportion of zero trade flows, and a lagged trade variable to correct for the potential reverse causality of opening diplomatic representations. Results show that, on average, Tanzania exports more to countries that host Tanzanian embassies, and imports more from countries that have embassies in Tanzania. Results underscore the effective role of economic diplomacy in reducing trade barriers and foster international trade; implying that as a country Tanzania needs to enhance and strengthen its economic diplomacy with her trading partners.

Suggested Citation

  • Mgeni Msafiri & Vincent Leyaro, 2024. "Does economic diplomacy influence international trade? Evidence from Tanzania," Discussion Papers 2024-05, University of Nottingham, CREDIT.
    • Handle: RePEc:not:notcre:24/05
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    File URL: https://www.nottingham.ac.uk/credit/documents/papers/2024/2405.pdf
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    References listed on IDEAS

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    3. Selwyn Moons, 2012. "What are the effects of economic diplomacy on the margins of trade?," International Journal of Diplomacy and Economy, Inderscience Enterprises Ltd, vol. 1(2), pages 147-162.
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    Keywords

    economic diplomacy; international trade; Tanzania;
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