Political Risk and Export Promotion: Evidence from Germany

Christoph Moser (), Thorsten Nestmann and Michael Wedow

The World Economy, 2008, vol. 31, issue 6, 781-803

Abstract: Political risk represents an important hidden transaction cost that reduces international trade. This paper investigates the claim that public export credit 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. 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 an important obstacle for exports and hence should be taken into account in any empirical model of trade.

Date: 2008
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Citations: View citations in EconPapers (67)

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https://doi.org/10.1111/j.1467-9701.2008.01102.x

Related works:
Working Paper: Political risk and export promotion: evidence from Germany (2006)
Working Paper: Political risk and export promotion: Evidence from Germany (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:worlde:v:31:y:2008:i:6:p:781-803

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