Working Paper: CEPR ID: DP9879
Authors: Shon Ferguson; Rikard Forslid
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; F12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Opening of Swedish embassies (F43) | Increase in the number of exporters (F10) |
| Opening of Swedish embassies (F43) | Increase in the number of exporters among medium-sized firms (F10) |
| Opening of Swedish embassies (F43) | Increase in the number of exporters among large firms (F10) |
| Opening of Swedish embassies (F43) | Reduction of entry barriers for firms (L10) |