Trade promotion (international trade)

Trade promotion (sometimes also export promotion) is an umbrella term for economic policies, development interventions and private initiatives to improve the trade performance of an economic area (like countries or regions within countries) or enterprises. Improvement is mainly sought by increasing exports both in absolute terms as well as relative to imports, but trade promotion also, for example, enhancing a company's sourcing of inputs through imports.

As an economic policy with the ultimate goal of increasing domestic welfare, trade promotion comprises a large set of policy instruments, most notably the provision of trade intelligence to domestic enterprises in order to reduce transaction costs and provide them with a competitive advantage vis-à-vis foreign companies. Many countries all over the world have set up special agencies, most of them in the public domain, to implement trade promotion policies and provide support services to domestic enterprises.[1]

Some international organizations provide assistance to so-called developing countries to help them promote their exports, most prominently the International Trade Centre in Geneva, which is a subsidiary of the World Trade Organization and the United Nations with a mandate to providing trade-related technical assistance to those countries.[2]

Economic theory of trade promotion

The rationale for public trade promotion measures is based on the observation of market failures and the idea of creating positive externalities. All economic transaction imply so-called transaction costs. In international trade, some transaction costs are significantly higher than when carrying out business in the domestic market: For example, information about foreign consumers is less readily available, foreign jurisdictions might apply different product standards which can pose technical barriers to trade, or transporting goods becomes more expensive and hazardous with increasing distance.[3]

New new trade theory

Since the mid-2000s, research in a relatively new branch of trade theory, which emphasizes the role of firm-level heterogeneity in explaining trade, has provided first insights about how export promotion affects individual enterprises. Using panel data for Chile and the USA, Alvarez (2004)[4] and Bernard and Jensen (2004),[5] respectively, find mostly insignificant firm responses to different export promotion schemes. In Alvarez (2004), only market studies and arranged meetings with experts, authorities and clients had a statistically significant effect. Görg et al. (2008),[6] however, find that matching grant schemes for Irish enterprises helps to increase exports by existing exporters without stimulating the entry of new firms into export markets.

Notes

  1. ↑ Since trade promotion is a rather vast field, the overall economic rationale for it can only be sought within the individual policy instruments. In case of public and private trade promotion organizations, see for example, Daniel Lederman, Marcelo Olarreaga and Lucy Payton 2007, Export Promotion Agencies: Do They Word?, Journal of Development Economics, 91 (2), pp. 257-265
  2. ↑ See ITC's mission statement at http://www.intracen.org/about/mission-and-objectives/. For an overview of trade-related technical assistance as part of the WTO's development assistance efforts, please see http://gtad.wto.org/.
  3. ↑ See for example, Daniel Lederman, Marcelo Olarreaga and Lucy Payton 2007, Export Promotion Agencies: Do They Word?, Journal of Development Economics, 91 (2), p. 257; Christian Volpe Martincus 2010, Odyssey in International Markets: An assessment of the effectiveness of export promotion in latin america and the caribbean, Inter-American Bank, Washington, page 16ff; Olivier Cadot et al. 2011, Are Export Support Programs Effective? Evidence from Tunisia, Working Paper, p. 3
  4. ↑ Roberto Alvarez 2004, Sources of export success in small- and medium-sized enterprises: the impact of public programs,International Business Review 13(3), pp. 383-400.
  5. ↑ Andrew Bernard and Bradford Jensen 2012, Why some firms export, Why some firms export 86(2), pp. 561-569.
  6. ↑ Holger Görg, Michaeal Henry and Eric Strobl 2008, Grant support and export activity: Evidence from Irish manufacturing, Review of Economics and Statistics (90)1, pp. 168-174.

See also

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