Technical Paper : The Impact of Diplomatic Representation Abroad on Canada's Exports

This Technical Paper presents the methodology and results the author's C.D. Howe Institute E-Brief of the same name. The economic literature provides evidence that diplomatic posts abroad have significant impacts on exports; at the same time, the literature shows that there are significant differences in the effectiveness of export promotion across the various instruments of export promotion as well as across contexts, products, and destinations. This study examines the impact of having diplomatic representation in a country on Canada's exports to that country, for different classes of goods and across different economic contexts. Using the gravity modeling framework, the study revisits the issue of the impact of Canada's diplomatic representation abroad on exports. It confirms that economic diplomacy boosts exports – and quite significantly – and adds to the existing literature by shedding light on the questions of where, why and how. The study concludes that the impact is greater for the first, main post (usually an embassy) than for additional consulates; that the impact is stronger on undifferentiated commodities than for manufactured goods; and that the impact is greater in countries which are characterized by lesser degrees of economic freedom. The results, which also show the positive impact of trade agreements on exports, point to a separate, significant effect of diplomatic relations on trade that is over and above the export gains from having additional Trade Commissioner “boots on the ground” in Canada's targeted export destinations