The impact of economic diplomacy on exports: The Portuguese case
| Author | Ana Fernandes,Rosa Forte |
| DOI | http://doi.org/10.1177/00207020221135382 |
| Published date | 01 June 2022 |
| Date | 01 June 2022 |
| Subject Matter | Scholarly Essay |
Scholarly Essay
International Journal
2022, Vol. 77(2) 216–247
© The Author(s) 2022
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DOI: 10.1177/00207020221135382
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The impact of economic
diplomacy on exports: The
Portuguese case
Ana Fernandes and Rosa Forte
University of Porto, Porto, Portugal
Abstract
It is widely recognized that exports contribute to economic growth. Many govern-
ments have seen economic diplomacy representation (foreign offices, embassies and
consulates) as an important tool to diminish export barriers and foster economic
growth. Thus, this study aims at understanding to what extent does the presence of
Portuguese economic diplomatic representation in foreign states impact Portuguese
exports. Based on merchandise exports to 144 countries for the period between
2008 and 2018, and using a quasi-gravity model of trade, results indicate that ceteris
paribus, Portugal exports more to countries which host a Portuguese office and an
increase in the number of offices in a foreign country positively affects exports to that
country.
Keywords
economic diplomacy, Portugal, exports, embassies, consulates, foreign offices
Exports have been encouraged and perceived by many governments as having a vital
role in the improvement of a country’s economic performance,
1
which can be explained
by an increase in the factor productivity, superior technical efficiency or better usage of
Corresponding author:
Rosa Forte, University of Porto, Faculty of Economics, Rua Dr. Roberto Frias, Porto 4200-464, Portugal.
Email: rforte@fep.up.pt
1. Chris Alexander and Ken Warwick,“Governments, exports and growth: Responding to the challengesand
opportunities of globalisation,”World Economy 30, no. 1 (2007): 177–194.
the productive capacity and economies of scale.
2
And in reality, empirical studies have
shown that “trade has a quantitatively large and robust positive effect on [national]
income,”
3
especially when compared to those countries which foster the protection of
the home market.
4
While in the past, transportation and communication costs were seen as the major
barriers to international trade, over the last few decades these barriers have lost im-
portance, and today, cultural and institutional factors are accounted as such.
5
This is
where economic diplomacy figures as an important tool, having the power to minimize
the impact of these new barriers to trade. Seen as the compilation of the relationships
developed by a country with its international network, economic diplomacy comprises
the relations and influence established by a country’s government which has an effect
on trade and investment.
6
Furthermore, and in spite of not being directly involved in
trade, governments tend to function as vehicles for information and communication.
7
This is because, when considered its trusted intermediary purpose, governments have,
among others, the function of providing market information to the potential exporters
and identifying possible sales opportunities abroad.
8
Since failure to enter foreign
markets is on many occasions connected with information asymmetry, foreign missions
can have the power to mitigate such issues,
9
with such being possible due to the
“unique, reliable and impartial access to information, such as through the global
embassy network and other government channels and contacts.”
10
Additionally, promotion activities have the role of minimizing the uncertainty
surrounding a firm’s entry into a new market—whether by assisting in the assessment of
possible profitable exporting markets, aiding in the foreign contractual procedures
surrounding the process, or even in the analysis of the consumers’response and/or
information on the exporting product.
11
2. Gustavo Crespi and Roberto Alvarez, “Exporter performance and promotion instruments: Chilean
empirical evidence,”Estudios de Economia 27, no. 2 (2000): 225–241.
3. Jeffrey Frankel and David Romer, “Does trade cause growth?,”American Economic Review 89, no. 3
(1999): 379.
4. Bernhard Heitger, “Import protection and export performance—their impact on economic growth,”
Weltwirtschaftliches Archiv 123, no. 2 (1987): 249–261.
5. Marie-Lise Van Veenstra, Mina Yakop, and Peter van Bergeijk, “Economic diplomacy, the level of
development and trade,”The Hague Journal of Diplomacy (Netherlands Institute of International
Relations ‘Clingendael,’2010).
6. Selwyn Moons and Peter van Bergeijk, “Does economic diplomacy work? A meta-analysis of its impact
on trade and investment,”The World Economy 40, no. 2 (2016): 336–368.
7. Timothy Wilkinson, Andrew Thomas, and Mary McNally, “The impact of US-sponsored foreign trade
office activities,”Journal of Global Marketing 24, no. 2 (2011): 181–195.
8. Alexander and Warwick, “Governments, exports and growth.”
9. Robin Visser, “The effect of diplomatic representation on trade: A panel data analysis,”The World
Economy 42 (2019): 197–225.
10. Richard Harris and Cher Li, Review of the Literature: The Role of International Tradeand Investment in
Business Growth and Development (London: DTI, 2005), 74
11. R ´
uben Segura-Cayuela and Josep Vilarrubia, “The effect of foreign service on trade volumes and trade
partners,”2008, Banco de España, Documentos de Trabajo n.o 0808.
Fernandes and Forte 217
Foreign offices, embassies, and consulates figure as examples of instruments of
economic diplomacy, and in recent years literature has shown an increasing focus on the
assessment of the impact of these instruments on trade. As the first author to produce a
macro-economic study of this matter, Andrew Rose
12
concluded that diplomatic
representation does have a positive influence on trade.
13
Rose went even further and
realized that the “creation of an embassy has a substantially larger impact on exports
than additional consulates.”
14
Moreover, Daniel Lederman, Marcelo Olarreaga, and
Lucy Payton
15
found a positive correlation between the increase of an export promotion
agency’s budget and national exports—helping to overcome the issues of information
asymmetry and possible trade barriers. Also, Yusuf Bagir
16
concluded that the presence
of an embassy has a positive impact on exports, with the overall impact coming mainly
from the volume effect (i.e., the intensive margin of trade).
Even though recent studies have shown that the extent of the impact of economic
diplomacy on trade tends to be distinct when taking into consideration the level of
differentiation of the goods or the intensive and extensive margin of trade
17
or even the
level of development of the countries engaged in the trade activities,
18
overall, the
literature has expressed a positive relationship between economic diplomacy and trade.
The value of this, however, has been the source of debate—especially due to limited
data availability; exclusive focus on one country, from which general conclusions
should not be drawn; a limited set of partner countries; or an exclusive focus on
developed countries.
19
Thus, the impact of economic diplomacy on trade figures as an
interesting topic that should be further explored. Consequently, the purpose of this
study is to analyze to what extent the presence of Portuguese diplomatic representation
in foreign states impacts Portuguese exports to those countries. Hence, having as a basis
the gravity model of trade and export data of Portugal and 144 partner countries in a 11-
year-period (between 2008 and 2018), an econometric study is conducted on the
influence of economic diplomacy on trade.
Indeed, when we focus on Portugal, we can see that the country witnessed a growth
in the value of its goods’exports, from 38.95 billion euros in 2008 to 57.807 billion
euros in 2018.
20
Furthermore, over the past five years, the annual budget of the Ministry
12. Andrew Rose, “The foreign service and foreign trade: Embassies as export promotion,”The World
Economy 30, no. 1 (2007): 22–38.
13. Moons and van Bergeijk, “Does economic diplomacy work?”
14. Rose, “The foreign service and foreign trade,”29.
15. Daniel Lederman, Marcelo Olarreaga, and Lucy Payton, “Export promotion agencies: Do they work?,”
Journal of Development Economics 91, no. 2 (2010): 257–265.
16. YusufBagir, “Impact of the presence of embassies on trade: Evidence from Turkey,”WorldTrade Review
19, no. 1 (2020): 51–60.
17. Visser, “The effect of diplomatic representation on trade.”
18. Mina Yakopand Peter van Bergeijk, “Economic diplomacy, trade and developing countries,”Cambridge
Journal of Regions, Economy and Society 4, no. 2 (2011): 253–267.
19. Moons and van Bergeijk, “Does economic diplomacy work?”
20. Instituto Nacional de Estat´
ıstica - Estat´
ısticas do Com´
ercio Internacional 1993-2009, Lisboa: INE,
2010; Instituto Nacional de Estat´
ıstica - Estat´
ısticas do Com´
ercio Internacional: 2018, Lisboa: INE, 2019.
218 International Journal 77(2)
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