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A Theoretical Analysis of Economic Impacts of Export Credit Insurance and Guarantees

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  • Rienstra-Munnicha, Paul
  • Turvey, Calum G.
  • Koo, Won W.

Abstract

This paper developed an economic framework to analyze the economic impacts of an ECP on trade flows within the context of a partial equilibrium approach which assumes that non-payment risks are distinct between selling at home and abroad based on difficulties and expense in recovering non-payments are different in the two markets. A two-country partial equilibrium trade model is developed to analyze the economic impact of the export credit insurance and/or guarantees on trade flows. The results also show that to minimize or recover the efficiency loss, an export credit program can be employed to increase the exported quantity and reduce the excessively high equilibrium price as a result of non-payment risk. The overall net welfare loss of the two countries is smaller than the recovered efficiency loss. From the perspective of recovering efficiency loss, the use of an export credit program is justifiable.

Suggested Citation

  • Rienstra-Munnicha, Paul & Turvey, Calum G. & Koo, Won W., 2006. "A Theoretical Analysis of Economic Impacts of Export Credit Insurance and Guarantees," 2006 Annual meeting, July 23-26, Long Beach, CA 21391, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea06:21391
    DOI: 10.22004/ag.econ.21391
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    References listed on IDEAS

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    1. Filip Abraham & Gerda Dewit, 2000. "Export Promotion Via Official Export Insurance," Open Economies Review, Springer, vol. 11(1), pages 5-26, January.
    2. Ms. Chanpen Puckahtikom & Mr. Eduard H. Brau, 1985. "Export Credit Cover Policies and Payments Difficulties," IMF Occasional Papers 1985/006, International Monetary Fund.
    3. Howard D. Leathers, 2001. "Agricultural Export Subsidies as a Tool of Trade Strategy: Before and after the Federal Agricultural Improvement and Reform Act of 1996," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 209-221.
    4. International Monetary Fund, 1997. "Recent Export Credit Market Developments," IMF Working Papers 1997/027, International Monetary Fund.
    5. Brainard, William C. & Cooper, Richard N., 1968. "Uncertainty and Diversification in International Trade," Food Research Institute Studies, Stanford University, Food Research Institute, vol. 8(3), pages 1-29.
    6. Moravcsik, Andrew M., 1989. "Disciplining trade finance: the OECD Export Credit Arrangement," International Organization, Cambridge University Press, vol. 43(1), pages 173-205, January.
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    Keywords

    Risk and Uncertainty;

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