Political risk and export promotion: evidence from Germany

Christoph Moser (), Thorsten Nestmann and Michael Wedow

No 2006,36, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: Political risk represents an important hidden transaction cost that reduces international trade. This paper investigates the claim that German public export credit guarantees (Hermes guarantees) mitigate this friction to trade flows and hence promote exports. We employ an empirical trade gravity model, where we explicitly control for political risk in the importing country in order to evaluate the effect of export guarantees. The idea behind export promotion through public export credit agencies (ECAs) is that the private market is unable to provide adequate insurance for all risks associated with exports. As a consequence, firms' export activities are limited in the absence of insurance provision. Using a novel data set on guarantees we estimate the effect of guarantees in a static and dynamic panel model. We find a statistically and economically significant positive effect of public export guarantees on exports which indicates that export promotion is indeed effective. Furthermore, political risk turns out to be a robust determinant of exports and hence should be taken into account in any empirical model of trade.

Keywords: public export credit guarantees; political risk; panel regression (search for similar items in EconPapers)
JEL-codes: C23 F13 H81 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-int, nep-pbe and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Political Risk and Export Promotion: Evidence from Germany (2008)
Working Paper: Political risk and export promotion: Evidence from Germany (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:5110

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