Selwyn Moons

Does Economic Diplomacy Work? A Meta Analysis on the Effect of Economic Diplomacy on International Economic Flows

This paper presents a meta-analysis of the effects of economic diplomacy on international flows (trade and FDI). The tools of economic diplomacy under investigation in our study are: embassies, other foreign offices, investment promotion offices, export promotion offices, trade missions and other, more general indicators for the bilateral political relation.Our paper builds upon the rapidly growing number of papers on the effectiveness of economic diplomacy. Main focus of the recent research is the effect of the international network of countries and the activities within it as an explanatory variable for bilateral trade flows and FDI. Results of these papers however show substantial heterogeneity, making it difficult to compare between studies.We contribute to the literature by delivering a meta-analysis of empirical studies on the contribution of economic diplomacy to trade and FDI. Such an analysis has not been done before. For this analysis we combined 23 studies and 873 parameters. The meta-analysis allows us to transform the findings from individual studies, which are not always perfectly consistent, to one conclusion. This conclusion has a smaller degree of uncertainty than the conclusions of individual studies. The meta-analysis also allows us to identify the sources of variation in the reported primary results. The meta-effect for economic diplomacy is significant and positive. There is however heterogeneity in the impact among different instruments used. It appears that embassies have an above average contribution to bilateral trade and FDI flows. The use of other government centers (e.g. consulates), investment and export promotion agencies seems to have an below average trade and investment stimulating effect (but still contribute positively).

What are the Effects of Economic Diplomacy on the Margins of Trade

Many countries have implemented economic diplomacy policies in an effort to support their firms in the internationalisation process. The channels through which these programs affect trade, the intensive margin or the extensive margin, were until now unknown. This paper aims to fill this gap by presenting a qualitative and quantitative literature review on the effect of economic diplomacy on the margins of trade. Allowing for different effects between the OECD countries and non-OECD Latin American countries the review shows that economic diplomacy is effective for increasing the extensive margin of trade. Economic diplomacy may thus serve as a successful instrument to diversify exports. Findings for the intensive margin are more ambiguous. In general, economic diplomacy does not seem to influence the intensive margin of trade significantly. Investigating regional effects however reveals that this result is mainly driven by the large number of insignificant observations for the non-OECD Latin American countries.

Economic Diplomacy, Product Characteristics and the Level of Development

We use an applied gravity model to assess the effect of economic diplomacy on the export of homogeneous, differentiated and reference priced goods. We take into account the possible heterogeneous effects economic diplomacy potentially has on trade between countries of different development levels. Our results show that economic diplomacy is most effective as a trade stimulating instrument when the transactions involve more complicated products. We furthermore show that economic diplomacy has the largest impact on bilateral trade flows between countries with different development levels. Our conclusion is that economic diplomacy is a potentially very important policy tool to consider for policy makers in developing countries who want domestic companies to enter developed markets with a more complex product. Equally economic diplomacy is an important tool to consider for policy makers from industrialized countries that want to support domestic firms to enter emerging (typically lower developed) markets.

Research Handbook on Economic Diplomacy

This Handbook positions economic diplomacy as a multidisciplinary field and presents state of the art research relevant to policy makers and academia around the globe focusing on four themes: the role of economic diplomats, the impact and evaluation of economic diplomacy, politics and trade and emerging markets. It offers academic, business and policy perspectives taking stock of knowledge produced with qualitative and quantitative research on Northern America, Europe, Africa, Asia and Latin America.

Economic Diplomacy and Economic Security: A Meta Analysis

This meta-analysis focuses on t-values in studies on the empirical relationship between international economics and international politics. We find that this relationship is highly significant especially regarding import flows. We speculate that an increase in the level of international conflict could thus result alongside the 2009 world trade collapse. The empirical regularity that lower levels of bilateral trade are associated with higher levels of conflict between nations is an important argument for the industrialized world to increase the international economic relationships with China and other emerging economies.