MAER-Net Colloquium (7 September 2013)
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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 The paper in a nutshell. Topic: the impact of diplomatic activity on trade & FDI

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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

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.


Today’s plan

  • 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


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 priceDavid Hume 1742

So far this treaty, therefore, is evidently advantageous to Portugal, and disadvantageous to Great Britain. Adam Smith 1776

Definition & motivation


Trends in modern economic diplomacy

High level trade missions

Export promotion agencies

Definition & motivation


While transport costsdecreased, distancedidnot die

Definition & motivation

Source: van Bergeijk and Brakman 2010


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


  • 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


Construction of the Sample

Starting point: traditional review of literature

Search strategy

Sample & 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 & bibliometrix

1334 regressions from 30 studies

By instrument

By international flow

Sample & bibliometrix


What do we know?

Evidence by instrument

Evidence by flow




State visits

Non embassies


Sample & bibliometrix



Sample & bibliometrix


State visits

Sample & bibliometrix


Funnel plot

Sample & bibliometrix


Meta-regression analysis

Metaregression analysis

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

Findings I (Empirical design & dependent variable)

Metaregression analysis


Findings II (Instruments of diplomacy)

Metaregression 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

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