Trade is inherently risky, involving a commitment problem for both importers and exporters. Even before worrying about financing, an exporting firm has to identify an importer willing to trade the product. For their part, importers can’t be sure ex ante that exporters will actually deliver the goods or services. How, then, do firms establish new trading relationships? Hicks and his co-author argue that domestic firms can use government institutions — specifically, export promotion agencies or embassies in foreign countries — to vet potential trade contacts and settle potential disputes before they get too serious, thus insuring against the basic risks of trade. They expect that this institutional backing will have stronger export-promoting effects on trade with economically developing and politically dissimilar countries. Using a large collection of U.S. State Department cables from the 1970s that mention export promotion, they find strong evidence that the efforts at promotion had the largest effect when economic trade barriers were high and in countries that were politically dissimilar to the U.S. Rather than a passive participant in trade, government bureaucrats play a large role in helping firms establish trading relationships
Deadline for registrations: 10 February @ 5pm CET
Speaker:
Raymond Hicks (Visiting Fellow, EUI)
Chair:
Katarzyna Grzybowska (EUI)
Organisers: