º¬Ðß²ÝÊÓƵ contribution to UK Parliament's Business and Trade Committee's Export-led growth inquiry

Details

Committee: Business and Trade Committee

Inquiry: Export-led growth

Publication date: 19 September 2023

º¬Ðß²ÝÊÓƵ researchers: Elena Georgiadou*, Huw Edwards*, Anna Grosman**, Tien-Der Jerry Han*

*º¬Ðß²ÝÊÓƵ Business School

* º¬Ðß²ÝÊÓƵ London  

Remit of Inquiry

The Business and Trade Committee has launched an inquiry into Export-led growth. The Committee will examine how well equipped the UK is to achieve the ambitious target set by the Government for growth in UK exports by the end of the current decade. It will also consider how the UK can take advantage of export opportunities in emerging technologies and critical international supply chains.

Summary of º¬Ðß²ÝÊÓƵ contribution

"In our paper, we review both a series of econometric (quantitative) and qualitative studies, as well as reviewing the current export policy setup in a number of selected countries, which are regarded as leaders in export promotion practice.

We start with quantitative studies addressing the efficacy of commercial diplomacy and other activities in promoting exports. We have reviewed just over 20 econometric studies using a variety of methodologies and covering different countries and different types of export promotion activity. The methodologies can be categorized into four groups: gravity-based studies, firm-level studies, transaction-level studies, and a meta-analysis, each of which is suitable to a different set of subsidiary questions.

While these studies differ in methodology and coverage, some broad themes emerge.

  1. Overwhelmingly, the gravity studies confirm a positive effect of diplomatic representation upon trade.
  1. Embassies have a stronger effect than consulates. By contrast, trade missions and state visits tend to have either little effect, or short-lasting effect only.
  2. Most of the firm-level studies suggest that export promotion tends to have a greater effect upon export market entry (the extensive margin) – although a possibly more rigorous study of Canada found the effect was more on the intensive margin.
  3. The transactions-level studies of Spain, the UK and Belgium, all found positive effects upon both the number of products exported, and the Spanish study found transactions per product also increased.

The tentative conclusion is that export promotion activities by embassies and (to a lesser degree) consulates have a significant effect, although more study would be needed to confirm cost-effectiveness. There is serious doubt about the value of diplomatic visits and trade missions.

We have also reviewed 15 papers which use qualitative methods including case studies and showcase the value added of governmental commercial diplomacy for export promotion generally and SME internationalization specifically. The highlights from this review are as follows:

  1. There is increasing need for hybrid models of organisation of commercial diplomacy comprising both traditional diplomatic tools and private sector institutions/export agencies.
  2. There is heterogeneity among firm needs with regard to internationalisation support and tailored support programmes are required that are appropriate for particular stages and aspects of internationalisation such as negotiating and managing agreements, resolving problems when e.g. borders are closed or import taxes are raised and negotiating IP and contracts.
  3. There is increasing need for intensification of representation in embassies from various government departments, academic institutions and specialists to support internationalisation of start-ups and small to medium-sized enterprises (SMEs) in specific industries, such as life sciences and clean energy.
  4. Commercial diplomatic services and support mechanisms via embassies are particularly useful for:

a)      Newcomers to a host market or for SMEs with no prior experience in exporting or unwilling to export but forced to do so due to pressures such as a domestic economic crisis.

b)      Bilateral trade relationships of developing countries, especially in view of North–South trade. In these contexts, capitalising on political relationships has a positive effect on allowing SMEs to access networks in host markets.

  1. There are two main commercial diplomacy mechanisms that positively influence SME internationalisation: a servicing mechanism and a network mechanism resolving respectively barriers of SMEs’ information asymmetry and lack of professional international management skills partner as well as opportunity/partner identification in foreign business networks."

The published submission can be viewed on the Inquiry webpage.