Does Economic Diplomacy Work? A Meta Analysis on the Effect of Economic Diplomacy on International Economic Flows

Abstract

This paper presents a meta-analysis of the effects of economic diplomacy on international flows (trade and FDI). The tools of economic diplomacy under investigation in our study are: embassies, other foreign offices, investment promotion offices, export promotion offices, trade missions and other, more general indicators for the bilateral political relation.Our paper builds upon the rapidly growing number of papers on the effectiveness of economic diplomacy. Main focus of the recent research is the effect of the international network of countries and the activities within it as an explanatory variable for bilateral trade flows and FDI. Results of these papers however show substantial heterogeneity, making it difficult to compare between studies.We contribute to the literature by delivering a meta-analysis of empirical studies on the contribution of economic diplomacy to trade and FDI. Such an analysis has not been done before. For this analysis we combined 23 studies and 873 parameters. The meta-analysis allows us to transform the findings from individual studies, which are not always perfectly consistent, to one conclusion. This conclusion has a smaller degree of uncertainty than the conclusions of individual studies. The meta-analysis also allows us to identify the sources of variation in the reported primary results. The meta-effect for economic diplomacy is significant and positive. There is however heterogeneity in the impact among different instruments used. It appears that embassies have an above average contribution to bilateral trade and FDI flows. The use of other government centers (e.g. consulates), investment and export promotion agencies seems to have an below average trade and investment stimulating effect (but still contribute positively).