Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1012: Sizing Up the Impact of Embassies on Exports

Shon Ferguson () and Rikard Forslid ()
Additional contact information
Shon Ferguson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Rikard Forslid: Stockholm University, Postal: Department of Economics, SE-106 91 Stockholm, Sweden

Abstract: The purpose of this study is to test for the effects of trade promotion via the foreign service. We develop a Melitz-based model where firms are heterogeneous with respect to productivity and must pay a beachhead cost to enter a foreign market, which can be reduced by government spending on trade promotion. The model predicts that unilateral trade promotion allows medium-sized firms to export. We test this prediction using Swedish firm-level data and information on the opening and closing of Swedish embassies abroad using Norwegian firms as control group. Our results lend support to the predictions of the model, with large and medium-sized firms responding most strongly to the opening of embassies.

Keywords: Heterogeneous firms; Trade promotion

JEL-codes: D21; D22; F12; F15

24 pages, March 4, 2014

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