Economic Diplomacy, Product Characteristics and the Level of Development
26 Pages Posted: 3 Jan 2015
Date Written: September 2, 2014
We use an applied gravity model to assess the effect of economic diplomacy on the export of homogeneous, differentiated and reference priced goods. We take into account the possible heterogeneous effects economic diplomacy potentially has on trade between countries of different development levels. Our results show that economic diplomacy is most effective as a trade stimulating instrument when the transactions involve more complicated products. We furthermore show that economic diplomacy has the largest impact on bilateral trade flows between countries with different development levels. Our conclusion is that economic diplomacy is a potentially very important policy tool to consider for policy makers in developing countries who want domestic companies to enter developed markets with a more complex product. Equally economic diplomacy is an important tool to consider for policy makers from industrialized countries that want to support domestic firms to enter emerging (typically lower developed) markets.
Keywords: economic diplomacy, development, international trade, gravity
JEL Classification: F13, F00, F02
Suggested Citation: Suggested Citation