This paper analyzes whether public export credit guarantees lead to a significant amount of additional exports. Export promotion through export guarantees should mitigate specific frictions in international trade. This stimulates an effort to enhance exports by providing guarantees against export risks. With respect to relevant literature and theoretical models, a positive effect of guarantees is expected.
For example, regions with a higher degree of insecurity should benefit more from insurance coverage. The authors consider the case of the Czech Republic as a representative of a small open post-transitional economy with a small home market base. The development and structure of Czech trade and export support is presented first.
This is followed by an econometric analysis of the gravity model of Czech trade. A panel of 160 countries in 1996–2008 is analyzed and two gravity models of exports for the Czech Republic are estimated, the static model by fixed effects (LSDV estimator) and the dynamic model by System GMM. Finally, robust LTS estimator is used.
The main findings of the paper are as follows:
guarantees are a significant factor that influences positively the volume of exports in the Czech Republic
there exist additional factors that affect the volume of exports in our model
bigger market size offers more opportunities for exporters. Since it is expected that guarantees are a significant factor, and since the statistical significance of guarantees in the dynamic model was not really convincing, using additional tests the authors decided to check whether guarantees in both the short-run and long-run really are significant
In conclusion the authors state that the hypothesis that export promotion is successful in both the short- and long-run could not be rejected. Export guarantees can reduce the uncertainty of exports. This risk reduction increases exports to (risky) markets where exporting companies would not sell otherwise.
Moreover, guarantees which enable an initial export to some country can make future exports to this country more likely. Public export agencies may also bring positive effects by gathering information about foreign markets. Therefore, they can reduce entry costs.