Economic diplomacy and product characteristics

This chapter sheds light on the effect of different sorts of diplomatic activity on trade. The authors use an applied gravity model with developed and developing countries to assess the effect of economic diplomacy on exports. The chapter adds to the existing literature by providing the first comprehensive analysis that takes into account the different forms of diplomatic representation, the complexity of the traded product and the effect of diplomatic representations on the formation of bilateral trade relations (as opposed to expanding trade volumes). The authors’ findings show clear differences between diplomatic representations, with embassies having a stronger effect. Furthermore, there are strong differences between product groups, with economic diplomacy being more effective for more complex goods. These results hold for forming trade relations as well as expanding the volume of trade. The results are robust for various specifications, in particular for an innovative approach to confirm causality.