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MAER-Net Colloquium (7 September 2013). Does economic diplomacy work? Meta analysis of the effect of Economic Diplomacy on international flows. Selwyn Moons Peter van Bergeijk [email protected]. The paper in a nutshell. Topic: the impact of diplomatic activity on trade & FDI - PowerPoint PPT Presentation
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Does economic diplomacy work? Meta analysis of the effect of Economic Diplomacy on international flows
Selwyn Moons Peter van Bergeijk [email protected]
MAER-Net Colloquium (7 September 2013)
The paper in a nutshell
• Topic: the impact of diplomatic activity on trade & FDI• Two literatures:
– 1980s&1990s international relations– 2000s international economics
• 643 t-values taken from 29 studies• Evidence predominantly on exports and embassies• Question 1: Does it work?• Question 2: Sensitivity to model specification.
04/21/23 Bergeijk 2
Today’s plan
1. Definition & motivation
2. Literature
3. Sample & bibliometrix
4. Meta regression
5. Conclusions
Economic diplomacyEconomic diplomacy is the use of government relations and government influence to stimulate international trade and FDI and is directed to:•open markets and the opening of markets to stimulate cross border economic activities (imports, exports, FDI);•the use of bilateral relationships to assist domestic companies which encounter difficulties abroad;•improving the functioning of international markets in;•increasing economic security by the promotion of (and compliance with) international rules and agreements
04/21/23 Bergeijk 4Definition & motivationDefinition & motivation
Methuen 1703 Treaty
Definition & motivationDefinition & motivation
Classical Economists are Critical about Economic Diplomacy
04/21/23 Bergeijk 6
We have lost the French market for our woolen manufactures, and transferred the commerce of wine to Spain and Portugal, where we buy worse liquor at a higher price David Hume 1742
So far this treaty, therefore, is evidently advantageous to Portugal, and disadvantageous to Great Britain. Adam Smith 1776
Definition & motivationDefinition & motivation
Trends in modern economic diplomacy
High level trade missions Export promotion agencies
04/21/23 Bergeijk 7
05
10152025303540
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Definition & motivationDefinition & motivation
While transport costs decreased, distance did not die
04/21/23 Bergeijk 8
Source: van Bergeijk and Brakman 2010Definition & motivationDefinition & motivation
Relevance of economic diplomacy
• Cultural factors may make it necessary for national governments to get involved in international transactions. This is especially the case now that former communist countries account for an increasing share of world trade.
• State enterprises may be the counterpart of a company operating in the international markets. This creates the necessity for entrepreneurs to seek cooperation with its national government to equalize the power balance and to improve its playing field.
• (Political) uncertainty about international transactions must often be removed or reduced. Government involvement may signal that a transaction will not raise political resistance.
• The information needed for international transactions sometimes requires involvement of government officials.
Definition & motivationDefinition & motivation
Literature(s)• Growing body of literature. • First wave: 1980s international relations
– ‘general’ – mainly use political event data, dummies
• Second wave: 2000s international economics– ‘specific’ – More refined analysis, main focus on embassy network and
activities, cross section analysis
• Binding element: most papers use the gravity equation• What changed: new datasets (instruments, period and
countries) more computing power
LiteratureLiterature
Construction of the Sample
Starting point: traditional review of literature Search strategy
04/21/23 Bergeijk 11Sample & bibliometrixSample & bibliometrix
Selection rules
• Paper taken in to account when:– empirically address the question what the impact is of
economic diplomacy on trade and investment flows– t - values are reported or can be (re)constructed – (Note: 1334 coefficients in 30 primary studies versus
643 t values in 29 studies)• Paper not taken into account:
– logit or probit models (probability of trade)– incompleteness of key statistics (Note: 27 studies and
416 t values)
Sample & bibliometrixSample & bibliometrix
1334 regressions from 30 studies
By instrument By international flow
04/21/23 Bergeijk 13Sample & bibliometrixSample & bibliometrix
What do we know?
Evidence by instrument Evidence by flow
04/21/23 Bergeijk 14Sample & bibliometrixSample & bibliometrix
Diplomatic climate
Embassies
EPA/IPA
State visits
Non embassies
Other trade missions
(Dis)agreement
04/21/23 Bergeijk 15
: t-values for economic diplomacy as reported in the primary studies
-10
0
10
20
30
40
Hea
d an
d Ri
es (2
006)
Bigl
aise
r (2
007)
van
Veen
stra
et a
l (20
11)
Yako
p et
al (
2011
)
Segu
ra-C
ayue
la e
t al (
2007
)
Volp
e M
artin
cus
and
Carb
allo
(201
0)
Mor
isse
t (20
03)
Nits
ch (2
007)
Sum
mar
y (1
989)
Polli
ns (1
989b
)
Afm
an a
nd M
aure
l (20
10)
Lede
rman
et a
l (20
07)
Gil
et a
l (20
07)
Volp
e M
artin
cus
et a
l (20
10)
Rose
(200
7)
Yako
p an
d va
n Be
rgei
jk (2
011)
Polli
ns (1
989a
)
Gil-
Pare
ja e
t al (
2007
)
Berg
eijk
(199
2)
Berg
eijk
(199
4)
Nig
h (1
985)
Pola
chek
et a
l (20
07)
min
max
median
avg
Sample & bibliometrixSample & bibliometrix
State visits
04/21/23 Bergeijk 16Sample & bibliometrixSample & bibliometrix
Funnel plot
04/21/23 Bergeijk 17
05
10
15
ln(o
bse
rvat
ions
)
-20 -10 0 10 20 30t-statistic
Funnel plot with pseudo 95% confidence limits
Sample & bibliometrixSample & bibliometrix
Meta-regression analysis
Metaregression analysisMetaregression analysis
Estimated equations
P(yij=1)=α0+β1OBSERVATIONSij+β2NOTOLSij+β3COUNTRYSPECIFICj+β4GRAVITYEQUATIONj+β5PRE2000j+β6,…,9 [primary dependent variableij]+β10,…,16 [instruments of diplomacyij]+ε ij (3)
Probability of significant t (Logit, RE Logit, significance levels)
Metaregression analysisMetaregression analysis
reference case is a primary study that measures the impact of foreign representation (embassies and consulates) on exports
Findings I (Empirical design & dependent variable)
04/21/23 Bergeijk 20Metaregression analysisMetaregression analysis
Findings II (Instruments of diplomacy)
04/21/23 Bergeijk 21Metaregression analysisMetaregression analysis
Conclusions & issues for discussion
• Evidence suggests “it works” but predominantly for exports and foreign network
• Future research design: Lumping embassies consulates EPAs etc together creates potential downward bias of the effect
• Sample selection rules; incomplete studies, inclusion N