NCPA - National Center for Policy Analysis

U.S. CONSULATES RAISE EXPORTS

September 20, 2005

Improved communications and better sources of information make foreign missions like consulates less relevant in the twenty-first century. However, the National Bureau of Economic Research finds that these foreign missions still perform a vital function: export promotion.

Andrew Rose notes that the State Department paid $4.2 billion for diplomatic and consular programs, and another $1.5 billion for embassy security, construction, and maintenance. Because of increased trade effects, these foreign missions are well worth it. He analyzed 22 large exporting nations with 200 destination countries and found:

  • Bilateral exports rise by about 6 to 10 percent for each additional consulate a nation establishes in a customer nation.
  • However, the effects of adding a consulate vary by the exporting nation.
  • Also, the effects are non-linear -- that is, the first foreign mission gives a larger boost to exports than successive missions.

Taking into consideration a host of other factors that could affect export levels, Rose concludes that the 6-10 percent export gain he finds is statistically significant and economically plausible in magnitude. Moreover, it varies by the exporting nation and is non-linear -- that is, the first foreign mission gives a larger boost to exports than successive missions.

Source: Linda Gorman, "U.S. Consulates Raise Exports," NBER Digest, August 2005; based upon: Andrew Rose, "The Foreign Service and Foreign Trade: Embassies as Export Promotion," National Bureau of Economic Research, Working Paper, No. 11111, February 2005.

For text:

http://www.nber.org/digest/aug05/w11111.html

For abstract:

http://papers.nber.org/papers/w11111

 

Browse more articles on Economic Issues