Political Risk and Export Promotion: Evidence from Germany
By Christoph Moser, Thorsten Nestmann, Michael Wedow. Social Science Research Network, 2008
137 citations recorded by the source corpus.
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.
Subfields: Development, Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/cf47efffcabc8a06ef6b5a991d3b053208f06c5d
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Citations in the corpus
- Testing the trade credit and trade link: evidence from data on export credit insurance (2014, background): “80 % of total trade finance 6 See Van der Veer (2010), Felbermayr and Yalcin (2013), Felbermayr et al. (2012), Moser et al. (2008) and Egger and Url (2006).”
- Impacts of OPEC's political risk on the international crude oil prices: An empirical analysis based on the SVAR models (2016, methodology): “Moreover, the ICRG index has already been widely used in measuring a country’ political risk (Moser et al., 2008; Berggren et al., 2012; Hammoudeh et al., 2013).”