Economic Diplomacy and the Geography of International Trade
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Economic Diplomacy and the Geography of International Trade

Peter A.G. van Bergeijk

The book presents an overview of the general aspects of trade uncertainty, a central element in the analysis of economic diplomacy, illustrating that some instruments, such as sanctions (both positive and negative), increase trade uncertainty, whilst others – multilateral trade policy, for instance – aim to reduce this uncertainty. Commercial policy and bilateral economic diplomacy are explored, and economic sanctions analysed. An extensive review of the literature and empirical investigations of 161 sanctions and the commercial relationships of 37 countries provide topical and empirical perspectives on how international diplomacy may both be a cost and a benefit of the key drivers of productivity growth. Finally, policy conclusions are drawn, and a future research agenda presented.
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Chapter 5: The Weight of Bilateral Economic Diplomacy and Commercial Policy Revisited

Peter A.G. van Bergeijk


This chapter investigates the relationship between trade and bilateral economic and commercial diplomacy econometrically, not to discover the obvious, but to see whether an empirical basis exists to either confirm or refute common sense: does economic and commercial diplomacy matter and does it have a measurable impact on bilateral trade flows? The economic rationale is that border effects exist and may be related to insufficient private investment in knowledge about foreign markets and the way to sell products abroad. Here the government may step in to solve a market failure and provide its knowledge as a public good. Two sorts of public sector knowledge centres appear relevant. First, the Foreign Service (that is the embassies and consulates abroad) may have superior knowledge about local market opportunities and unique experience in doing business in the specific cultural, institutional and political context of a country. Second, the export promotion agency may be an important source for businesses that consider an international strategy as it has knowledge about doing international business in general and about markets abroad. Typically the role of an export promotion agency would seem to be more linked to trade in general (so irrespective of destination) whereas embassies and consulates would be more directly linked to specific bilateral trade relations. Export promotion would thus seem to reduce to some extent the hurdle of the sunk costs involved in the export decision (that is have an impact on all export markets), whereas the activities of an embassy or consulate could be...

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