TY - JOUR
T1 - Trading with Frenemies
T2 - How Economic Diplomacy Affects Exports
AU - Casler, Don
AU - Connelly, Matthew
AU - Hicks, Raymond
N1 - Publisher Copyright:
© The Author(s) (2024).
PY - 2024/9/1
Y1 - 2024/9/1
N2 - Trade is inherently risky, involving a commitment problem for both importers and exporters. The former must deal with ex ante uncertainty about whether exporters will deliver the goods or services as promised, while the latter has to identify an importer willing to trade a product. How, then, do firms establish trading relationships, especially in new markets? While both classical and newer trade theories tend to downplay the role of government in trade, we argue that government institutions play a crucial role in resolving this uncertainty. Specifically, export promotion agencies and embassies in foreign countries vet potential trade contacts and head off potential disputes before they get too serious, thus insuring against the basic risks of trade. We expect that this institutional backing will have stronger export-promoting effects on great powers’ trade with economically developing and politically dissimilar countries. Using a large collection of U.S. State Department cables from the 1970s that concern export promotion, we find strong evidence that promotion efforts had the largest effect when economic trade barriers were high and in countries that were politically dissimilar to the U.S. Rather than passively participating in trade, government bureaucrats play a large role in helping firms establish trading relationships.
AB - Trade is inherently risky, involving a commitment problem for both importers and exporters. The former must deal with ex ante uncertainty about whether exporters will deliver the goods or services as promised, while the latter has to identify an importer willing to trade a product. How, then, do firms establish trading relationships, especially in new markets? While both classical and newer trade theories tend to downplay the role of government in trade, we argue that government institutions play a crucial role in resolving this uncertainty. Specifically, export promotion agencies and embassies in foreign countries vet potential trade contacts and head off potential disputes before they get too serious, thus insuring against the basic risks of trade. We expect that this institutional backing will have stronger export-promoting effects on great powers’ trade with economically developing and politically dissimilar countries. Using a large collection of U.S. State Department cables from the 1970s that concern export promotion, we find strong evidence that promotion efforts had the largest effect when economic trade barriers were high and in countries that were politically dissimilar to the U.S. Rather than passively participating in trade, government bureaucrats play a large role in helping firms establish trading relationships.
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U2 - 10.1093/isq/sqae098
DO - 10.1093/isq/sqae098
M3 - Article
AN - SCOPUS:85197695807
SN - 0020-8833
VL - 68
JO - International Studies Quarterly
JF - International Studies Quarterly
IS - 3
M1 - sqae098
ER -