Selwyn Moons Peter van Bergeijk bergeijk@iss.nl

1. 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

2. 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. Bergeijk

3. Today’s plan • Definition & motivation • Literature • Sample & bibliometrix • Meta regression • Conclusions

4. 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 Bergeijk

5. Methuen 1703 Treaty Definition & motivation

6. 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 priceDavid Hume 1742 So far this treaty, therefore, is evidently advantageous to Portugal, and disadvantageous to Great Britain. Adam Smith 1776 Definition & motivation Bergeijk

7. Trends in modern economic diplomacy High level trade missions Export promotion agencies Definition & motivation Bergeijk

8. While transport costsdecreased, distancedidnot die Definition & motivation Source: van Bergeijk and Brakman 2010 Bergeijk

9. 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

10. 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

11. Construction of the Sample Starting point: traditional review of literature Search strategy Sample & bibliometrix Bergeijk

12. 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

13. 1334 regressions from 30 studies By instrument By international flow Sample & bibliometrix Bergeijk

14. What do we know? Evidence by instrument Evidence by flow Diplomaticclimate Embassies EPA/IPA State visits Non embassies Othertrademissions Sample & bibliometrix Bergeijk

15. (Dis)agreement Sample & bibliometrix Bergeijk

16. State visits Sample & bibliometrix Bergeijk

17. Funnel plot Sample & bibliometrix Bergeijk

18. Meta-regression analysis Metaregression analysis

19. Estimated equations Probability of significant t (Logit, RE Logit, significance levels) P(yij=1)=α0+β1OBSERVATIONSij+β2NOTOLSij+β3COUNTRYSPECIFICj+β4GRAVITYEQUATIONj+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

20. Findings I (Empirical design & dependent variable) Metaregression analysis Bergeijk

21. Findings II (Instruments of diplomacy) Metaregression analysis Bergeijk

22. 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