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International trade and face-to-face diplomacy

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Abstract

This paper examines the effects of foreign visits by public officials on international trade. Using an original database that gathers more than 13,000 visits of French officials abroad and of foreign officials in France over the 1977–2007 period, it is shown that a bilateral visit to a foreign country is associated with an increase in French exports by 8% on average. This average effect hides considerable heterogeneity across world regions. The paper provides some evidence on the underlying mechanisms and finds that face-to-face visits mitigate trade costs related to contractual enforcement, insecurity and information. Indeed, analysis at the sectoral level reveals that visits increase French exports of a large variety of products, but that their effect is larger for differentiated products, i.e., goods highly exposed to contractual risks. Furthermore, bilateral visits reinforce trade, particularly in countries characterized by weak contract enforcement, corruption and lower political proximity with France, as well as by a smaller number of French migrants.

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Notes

  1. The personal knowledge of the cultural, legal or institutional context of migrants’ origin country allows them to reduce both the informational and contractual costs of trade. Relations with their origin country can also limit the cost of finding trusted local partners and contribute to the respect of contracts (Greif 1993; Rauch and Trindade 2002; Dunlevy 2006). Firms’ connections abroad also lower search and informational frictions because they provide, for instance, information to the firm about local market conditions (Chaney 2014).

  2. For former French colonies located in Sub-Saharan Africa, these presidents’ advisors have a special role. They are in charge of diplomatic relations, but also of the personal and friendly ties between French and African top-level officials, especially presidents (see Lavallée and Lochard 2019). Indeed, most of these visits concern African countries.

  3. This trend could reflect the EU enlargement. This is not entirely the case. The share of bilateral visits with EU members also increases even if we compute this share for a constant number of EU members, 15 for instance (14% during 1977–1986 to 22% during 1997–2007).

  4. In concrete terms, we estimate the model with (RTA- MRRTA) as an additional variable. For the MRDIST, MRBorder and MRComlang variables, we do not impose a similar restriction because the initial variables (ln(Dist), Border and Comlang) do not vary across time and are thus captured by country fixed effects.

  5. As expected, the point estimate of the effect of external visits (Table 2, column 2) is lower than that obtained on the reference sample (Table  1, column 2), but the 95% confidence intervals overlap. The main difference between the two tables is the significant and positive effect of the number of external visits on exports (column 3).

  6. More precisely, we estimate Eq. (4) replacing the Visit dummy variable by 15 new dummy variables (Visit\(_{t-4}\); Visit\(_{t-3}\);...; Visit\(_{t}\);...; Visit\(_{t+10}\)).

  7. We estimate Eq. (4) with six dummy variables for external visits according to the destination of these visits (Africa, Asia, Europe, North America, Oceania, and South America).

  8. Although the three-way fixed effects model estimated in Sect. 3.1 also adresses the issue of omitted variables, we believe that controlling for additional variables still strengthens the confidence in our results.

  9. All variables and data sources are defined in Appendix (Table 8).

  10. The total net ODA disbursements are the sum of grants, capital subscriptions, total net loans and other long-term capital.

  11. Data come from the International Country Risk Guide (ICRG) and are available for most countries after 1984 (see Table 8 in Appendix). Both indices range from 0 to 6 and a higher value indicates better functioning-institutions (or lower corruption).

  12. The coefficient on the Visit_Ext dummy variable is more than three times larger than in column (1), indicating that a visit from French officials in countries with the worst level of institutions (law and order or corruption index of zero) increases French exports by more than 30% compared to 9% on average.

  13. This index between 0 and 1 comes from Voeten (2013) (see Table 8 in Appendix for details).

  14. We do not add the index for political proximity alone in this case because it is computed as an average over the sample period (therefore, it is time invariant and collinear with country fixed effects).

  15. Business and social networks might affect trade through two effects: the reduction of information costs and diffusion of preferences. However, the preference channel matters only for imports (Gould 1994).

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Acknowledgements

We thank the editor and two anonymous referees as well as participants at DIAL Seminar, AFSE annual congress, ETSG conference and the XVI Conference on International Economics for useful comments and suggestions on a previous version.

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Authors and Affiliations

  1. DIAL, LEDa, IRD, CNRS, Université Paris-Dauphine, Université PSL, 75016, Paris, France

    Emmanuelle Lavallée

  2. ERUDITE, University of Paris-Est Créteil, Créteil, France

    Julie Lochard

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  1. Emmanuelle Lavallée
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Correspondence to Emmanuelle Lavallée.

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Appendix A: Data

Appendix A: Data

See Table 8.

Table 8 Data description and sources
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Lavallée, E., Lochard, J. International trade and face-to-face diplomacy. Rev World Econ 158, 987–1010 (2022). https://doi.org/10.1007/s10290-022-00454-5

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