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Investing in Trade Promotion Generates Revenue

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Recent analytical literature has concluded that money spent on export promotion tends to foster export growth. This work discusses the findings of recent work by a team of consultants that find that a 1% increase in export promotion budgets increases exports by 0.074%, confirming results in the earlier literature. Their work also suggests that these export gains translate into very large GDP per capita gains. Indeed, a 1% increase in export budgets generates a 0.065% increase in GDP per capita. Trade Promotion Organizations characteristics that tend to generate large export growth do not necessarily generate large gains in terms of GDP per capita growth.

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Introduction

Trade Promotion Organizations (TPOs) are present in most countries. They differ in their economic size, their governance, and on the type of activities they engage in. For instance, the export promotion budget to export ratio varies from 0.22% in Portugal to 0.15% in Chile and Colombia and 0.03% in Bolivia and Tanzania. The budgets vary from 500 million dollars in the United Kingdom to 60 thousand dollars in Sierra Leone. Few are fully financed by the private sector (Hong Kong), while most are fully financed by the government (Chile). Some TPOs spend half their budget on offices abroad (United Kingdom); others are only present in the home country (Uruguay). TPOs’ activities range from providing financial assistance (credit, insurance) to market intelligence (firms and products), technical assistance for transport logistics, product certification, and participation in trade fairs. Some promote exports across all sectors; others focus on a more limited range of non-traditional exports. The objective of this project is to find out which of these different characteristics of TPOs are more effective at promoting exports, and ultimately, GDP per capita growth.

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