The effect of foreign service on trade volumes and trade partners

Ruben Segura-Cayuela () and Josep Vilarrubia

No 808, Working Papers from Banco de España

Abstract: It has been emphasized that international promotion activities such as state visits or the presence of embassies, consulates and export promotion agencies help foster trade when there are search costs and/or uncertainty. In this paper we try to disentangle the differential effect that foreign service (embassies and consulates) has on both the establishment of trade links with countries, and the effect on trade volumes with already existing trading partners (the extensive and intensive margins at the country level). Using the estimation procedure suggested by Helpman, Melitz and Rubinstein (2007) and a cross-section of 21 exporters and 162 importers as in Rose (2005), we find that the presence of a foreign service office in a given country increases the probability of trading with that partner between 11% and 18%, but that it has no effect on the volume of trade with already existing trading partners. We then proceed to evaluate the importance of the extensive margin at the sectoral level, finding that these probabilities are substantially larger for more differentiated sectors.

Keywords: foreign service; uncertainty; extensive margin; intensive margin; gravity (search for similar items in EconPapers)
JEL-codes: F12 F13 F15 F55 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2008-04
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0808

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