Diplomatinių atstovybių poveikis eksportui. Lietuvos atvejis /

The Impact of Foreign Service on Export Promotion. A Case of Lithuania For years the governments around the world have tried to encourage exports by various means in the belief that they improve economic performance. In the large amount of literature it has been emphasized that international promotion activities such as state visits, export promotion agencies or trade missions abroad help promote trade. The economic justification for government involvement in export promotion is based on the theory of market failures. Asymmetric information problem is one of the most relevant export obstacle which leads to uncertainty. Due to this market failure, firms may have much higher entry costs or do not enter the market at all because they do not know the relevant information about foreign market, consumer preferences, quality and technical requirements, etc. Thus export promotion agencies and other governmental involvement through institutions try to reduce information asymmetric and foster trade, it has been questioned if it really has an impact on bilateral trade relationships. Such econometrics investigations have been made by numerous authors, e.g. Rose found that Foreign Service (the presence of embassies and consulates) seems to help to rise export by 6-10 per cent for each additional consulate. There have been no similar researches done on Lithuanian case, therefore this paper analyzes the impact of the number of Lithuanian embassies and consulates on export promotion. Using a bilateral gravity model of trade, the results of the world model, where N=173, suggest that the number of embassies do have a statistically significant impact and export would be expected to increase. Although the results of ordinary least square (OLS) equation have been checked for the most often obstacles occurred like multicolinearity and heteroscedasticity, the model may suffer from reverse causality problem. It is possible that diplomatic institutions will be set up in countries with which Lithuania already has strong economic and political relationships. This endogeneity of the embassies number variable would lead to biased results. In order to solve this problem, the new instrumental variables (IV) have been introduced. They are correlated to the variable of embassies but not related to export, e.g. it has been measured the desirability of the country because it may be an incentive to set up the consulate abroad but it does not have any influence to export. Different IV sets proved the previous results of OLS and confirmed the significant impact of the presence of diplomatic institutions. Furthermore, Lithuania does not have an embassy or consulate in all countries worldwide. The biggest concentration of them is in Europe. Theoretical background suggests that the information is much better transmitted in well developed countries rather than developing ones. Thus the research checks if the impact of the presence of embassy or consulate on export promotion is still significant. The OLS equation shows that Foreign Service does not significantly influence the amount of export. The reason for this could be that Lithuania and other European countries are more similar to each other culturally, thus it becomes easier to guess the foreign consumer preferences, also, as mentioned previously, the sources for information is easy accessible and the governmental intervention is not necessary. To conclude, the main findings of this research says that in Lithuanian case, the presence of embassies and consulates worldwide seems to lead to the export increasing, however, this factor is no longer highly statistically significant on export promotion in European countries. Finally, the paper gives suggestions for future research, in particular about the time-series analysis.

Grantor dc:publisher

Institutional Repository of Vilnius University

Year dc:date

2017

Author dc:creator

• Bitinaitė, Rūta,

Contributors dc:contributor

• Kuokštis, Vytautas

Statement dc:rights

• info:eu-repo/semantics/openAccess

Language dc:language

lit

Repository record dc:identifier

https://repository.vu.lt/VU:ELABAETD35470035&prefLang=en_US

OAI identifier oai:identifier

oai:vu.lt:elaba:35470035