The Danish Foreign Service Does Export Promotion Lead to Higher Exports?

In this paper, I analyse the effect of export promotion on Danish bilateral exports. This is done by using the variation in embassies and royal state visits in the period 1970-2009 in a gravity equation framework. I argue that export promotion works to reduce externalities and information barriers (which can come in the form of dissimilar customer preferences, missing information about suppliers or general inadequate information about the market) on distant markets, and thereby work as a reduction in the fixed costs of exporting. My empirical results indicate that export promotion through embassies increase exports over 26 per cent. and the effect is largest in Asia, Africa and the Middle East. Moreover, I find that the largest effect of embassies is in lower income countries, which is in line with earlier findings. Consulate generals and trade offices also have a contributing effect. Outbound state visits seem to have affected Danish exports in recent years, but does not show any positive results in the full time period. Conversely, inbound state visits seem to have affected Danish exports in the period, but only in the years after the state visits have been conducted. I conclude by suggesting and emphasising that the causal effect of export promotion should preferably be investigated by using firm level data, since this allows more dis - aggregated analysis, and the issue of causality can better be addressed.