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
bergeijk@iss.nl
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.
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Today’s plan
1.
2.
3.
4.
5.
Definition & motivation
Literature
Sample & bibliometrix
Meta regression
Conclusions
Economic diplomacy
Economic 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
Definition & motivation
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Methuen 1703 Treaty
Definition & motivation
Classical Economists are Critical
about Economic Diplomacy
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 & motivation
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Trends in modern
economic diplomacy
High level trade missions
Export promotion agencies
250
200
150
100
50
0
1950-59 1960-69 1970-79 1980-89 1990-99 2000-03
Frankrijk
Duitsland
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
40
35
30
25
20
15
10
5
0
Verenigde Staten
Definition & motivation
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While transport costs decreased,
distance did not die
Definition & motivation
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Source: van Bergeijk and Brakman 2010
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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 & 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
Literature
Construction of the
Sample
Starting point: traditional
review of literature
Search strategy
Sample & bibliometrix
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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 & bibliometrix
1334 regressions from
30 studies
By instrument
By international flow
3.6% 0.2%
8%
7%
33%
8%
23.6%
44%
72.6%
Embassies
Other offices
EPA/IPA
State visits
Export
Other visits
Import
FDI inflow
FDI outflow
Sample & bibliometrix
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What do we know?
Evidence by instrument
Evidence by flow
Diplomatiek
klimaat
Diplomatic
climate
Export
Embassies Ambassades
EPA/IPA
EPA/IPA
Import
State visitsStaatsbezoek
Andere posten
Non embassies
FDI
Other trade
Andere missies
missions
0%
Negatief (t<-2)
20%
40%
insignificant
60%
80%
100%
Positief (t>2)
0%
20%
Negative (t<-2)
40%
60%
Insignificant
80%
100%
Positive (t>2)
Sample & bibliometrix
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Polachek et al (2007)
Nigh (1985)
Bergeijk (1994)
Bergeijk (1992)
Gil-Pareja et al (2007)
Pollins (1989a)
Yakop and van Bergeijk (2011)
Rose (2007)
Volpe Martincus et al (2010)
Gil et al (2007)
Lederman et al (2007)
Afman and Maurel (2010)
Pollins (1989b)
Summary (1989)
Nitsch (2007)
Morisset (2003)
Volpe Martincus and Carballo (2010)
Segura-Cayuela et al (2007)
Yakop et al (2011)
van Veenstra et al (2011)
Biglaiser (2007)
Head and Ries (2006)
(Dis)agreement
: t-values for economic diplomacy as reported in the primary studies
40
30
20
min
max
10
median
avg
0
-10
significant & negative mean/median
insignificant mean/median
reports negative t-values
significant&postive mean/median; no negatives
Sample & bibliometrix
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State visits
Number of t values considered
80
70
median t (each study)
60
50
all observations
40
all excluding outliers
30
weighted
20
10
weigthed excluding
outliers
0
0
10
20
30
Aggregate t value
40
Sample & bibliometrix
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Funnel plot
15
10
5
0
Funnel plot with pseudo 95% confidence limits
-20
-10
0
10
20
30
t-statistic
Sample & bibliometrix
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Meta-regression
analysis
Categories of moderator variables
Moderator var name
Discription
Empirical design factors
FIXED EFFECTS
Dummy, 1 if fixed effects estimate; 0 otherwise
NOTOLS
Dummy, 1 if other than OLS estimate; 0 if OLS
COUNTRYSPECIFIC
Dummy, 1 if primary sample is country specific; 0 otherwise
PANEL
Dummy, 1 if panel data; 0 if cross-section data
PRE2000
Dummy, 1 if primary study is published before 2000; 0 otherwise
Observations
Number of observations in the dataset of primary study
EXPORT
Dummy, 1 if exports is dependant variable primary study; 0 otherwise
IMPORT
Dummy, 1 if imports is dependant variable primary study; 0 otherwise
FDI
Dummy, 1 if foreign direct investment is dependant variable primary study; 0 otherwise
TOTALTRADE
Dummy, 1 if total trade is dependant variable primary study; 0 otherwise
EMBASSIES
Dummy, 1 if embassies is included in primary study regressor; 0 otherwise
Dependant variable
Instrument of diplomacy
CONSULATES
Dummy, 1 if consulates is included in primary study regressor; 0 otherwise
Dummy, 1 if embassies and consulates is included as 1 group in primary study regressor; 0
EMBASSIESANDCONSULATES otherwise
FOREIGN EPA
EIPA
DIPLOMATIC RELATION
STATEVISITS
TRADEMISSION
Metaregression analysis
TRADE MISSIONS TOTAL
Dummy, 1 if foreign export promotion office is included in primary study regressor; 0 otherwise
Dummy, 1 if export/investment promotion agency is included in primary study regressor; 0
otherwise
Dummy, 1 if diplomatic relation is included in primary study regressor; 0 otherwise
Dummy, 1 if visits by head of state is included in primary study regressor; 0 otherwise
Dummy, 1 if visits by minister of other representative is included in primary study regressor; 0
otherwise
Dummy, 1 if state visits dummy is 1 or trade mission dummy is 1; 0 otherwise
Estimated equations
Probability of significant t (Logit, RE Logit, significance levels)
P(yij=1)=α0+β1OBSERVATIONSij+β2NOTOLSij+β3COUNTRYSPECIFICj+β4GRAVI
TYEQUATIONj+β5PRE2000j+β6,…,9 [primary dependent variableij]+β10,…,16
[instruments of diplomacyij]+εij (3)
reference case is a primary study that measures the impact of foreign
representation (embassies and consulates) on exports
Metaregression analysis
Findings I (Empirical design
& dependent variable)
Logit
5%
OBSERVATIONS
NOTOLS
COUNTRYSPEC.
GRAVITY.
PRE2000
TOTALTRADE
IMPORT
FDI
0.64***
(2.8)
-0.30
(-1.1)
0.63
(1.5)
1.98***
(2.9)
-1.2*
(-1.7)
-0.75**
(-2.3)
-0.19
(-0.3)
Logit
5%
0.29
(1.2)
0.27
(0.8)
-0.80*
(-1.70)
0.36
(0.60)
2.60***
(3.3)
-1.18
(-1.5)
-0.53
(-1.6)
-0.26
(-0.4)
1%
0.58***
(2.67)
-0.64**
(-2.53)
1.20***
(3.03)
1.50**
(2.3)
-2.19***
(-3.1)
-1.15***
(-3.4)
-0.44
(-0.6)
1%
0.540**
(2.05)
0.514
(1.49)
-0.683
(-1.52)
1.52***
(2.57)
2.04***
(2.7)
-2.50***
(-3.1)
-1.03***
(-2.9)
-0.19
(-0.3)
Random Effects Logit
1%
1%
0.711**
(1.97)
0.672***
0.423
(2.58)
(1.07)
-0.865***
-0.688
(-2.61)
(-1.14)
1.85**
1.46*
(2.22)
(1.90)
1.38
2.25**
(1.3)
(2.3)
-2.81**
-2.59**
(-2.3)
(-2.6)
-0.85**
-0.94**
(-2.3)
(-2.5)
0.13
0.0
(0.1)
(0.0)
Metaregression analysis
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Findings II (Instruments of
diplomacy)
Logit
EMBASSIES
CONSULATES
FOREIGN EPA
OFFICE
TRADE MISSION
STATE VISIT
EIPA
DIPLOMATIC
RELATION
Logit
Random Effects Logit
1%
1%
1.89*
-0.12
(2.3)
(-0.1)
-0.9
-3.1***
(-1.6)
(-4.1)
5%
0.43
(0.8)
-1.8***
(-5.0)
5%
-0.94
(-1.3)
-3.4***
(-6.1)
1%
0.92*
(1.7)
-1.7***
(-4.8)
1%
-0.52
(-0.8)
-3.4***
(-6.3)
-0.80***
-1.38***
-0.58**
-1.6***
-1.11*
-1.6***
(-2.7)
-1.8***
(-3.3)
-1.6***
(-4.2)
-0.72*
(-1.9)
(-3.1)
-2.5***
(-3.5)
-2.2***
(-4.2)
-1.5*
(-1.92)
(-2.0)
-1.3**
(-2.3)
-1.5***
(-4.1)
-0.53
(-1.47)
(-3.6)
-3.1***
(-4.0)
-2.7***
(-4.9)
-1.0
(-1.32)
(-1.9)
-0.7
(-0.8)
-0.3
(-0.4)
0.0
(0.1)
(-2.6)
-2.3**
(-2.4)
-2.0**
(-2.2)
-0.86
(-0.9)
0.07
-0.91
0.67
-0.45
1.35
-0.11
(0.1)
(-1.0)
(1.0)
(-0.5)
(1.3)
(-0.1)
Metaregression analysis
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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