Investing in Trade Promotion Generates Revenue

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06 Mar 2017
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Recent analytical literature has concluded that money spent on export promotion tends to foster export growth. This work discusses the findings of recent work by a team of consultants that find that a 1% increase in export promotion budgets increases exports by 0.074%, confirming results in the earlier literature. Their work also suggests that these export gains translate into very large GDP per capita gains. Indeed, a 1% increase in export budgets generates a 0.065% increase in GDP per capita. Trade Promotion Organizations characteristics that tend to generate large export growth do not necessarily generate large gains in terms of GDP per capita growth.

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  • Foreword

    This study follows the successful completion of a joint workshop on Impact Assessment by the International Trade Centre (ITC) and the network of European Trade Promotion Organizations (ETPO) in Vienna in January 2014. Financed by the network, for the network, it aimed to deliver practical assessment solutions for its members. Following the workshop, a group of ETPO members requested that ITC coordinate a European-wide study on their impact on trade and GDP in their respective countries.

  • Acknowledgements

    This study has been made possible through the financial contribution of 14 members of the ETPO network. The Trade Support Institutions Strengthening Section of ITC coordinated the overall study, working closely with each participating TPO to assemble and control the validity of the data that was used in the research.

  • Acronyms and abbreviations
  • Executive summary

    Trade Promotion Organizations (TPOs) are present in most countries. They provide vital services and expertise to help firms develop and improve their exports.

  • Introduction

    Trade Promotion Organizations (TPOs) are present in most countries. They differ in their economic size, their governance, and on the type of activities they engage in. For instance, the export promotion budget to export ratio varies from 0.22% in Portugal to 0.15% in Chile and Colombia and 0.03% in Bolivia and Tanzania. The budgets vary from 500 million dollars in the United Kingdom to 60 thousand dollars in Sierra Leone. Few are fully financed by the private sector (Hong Kong), while most are fully financed by the government (Chile). Some TPOs spend half their budget on offices abroad (United Kingdom); others are only present in the home country (Uruguay). TPOs’ activities range from providing financial assistance (credit, insurance) to market intelligence (firms and products), technical assistance for transport logistics, product certification, and participation in trade fairs. Some promote exports across all sectors; others focus on a more limited range of non-traditional exports. The objective of this project is to find out which of these different characteristics of TPOs are more effective at promoting exports, and ultimately, GDP per capita growth.

  • Data sources and summary statistics

    We merged information from three rounds of TPOs’ surveys. The first survey was conducted in the autumn of 2005 by the World Bank and the data was used in Lederman et al. (2010). The second round was conducted in the autumn of 2010 also by the World Bank, and the final round was conducted in the autumn of 2014 by the International Trade Center (ITC).

  • Empirical strategy

    Our objective is to measure the impact of changes in export promotion budgets on exports and GDP per capita and determine which are the types of TPO characteristics (governance, activities, funding) that lead to higher returns. For the sake of presentation we split the introduction and discussion of the models we have looked at in two steps: First the standard linear fixed effects panel model, then its extension towards a semiparametric varying coefficient model with fixed effects.

  • Results
  • Concluding remarks

    The literature on export promotion using both firm and country level data has focused on estimating the impact that export promotion programs have on average. While most of the literature tends to suggest that export promotion helps increase exports, we moved further in two important dimensions. First, we examine not only the impact of export promotion on exports, but also on GDP per capita. Indeed, the ultimate objective of export promotion policies is not exports per se, but social and economic growth. We used GDP per capita as a proxy for social and economic growth and found that the returns in terms of GDP per capita are larger than the export returns, which suggests the presence of positive externalities associated with export promotion.

  • References
  • Annex
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