Do Ambassadors Matter? The effect of ambassadors on trade promotion

Determining whether diplomacy has a real impact on local producers has been a focus of the economic literature for the past 20 years, mainly because of its potential effects on information barriers. This paper examines the impact of ambassadors on trade promotion, utilizing the 2012 Paraguayan political crisis as a natural experiment. Using highly disaggregated customs data and a difference-in-differences approach, I analyse how the unexpected withdrawal of Argentina’s ambassador affected bilateral trade patterns. My findings reveal that the ambassador’s absence led to a significant decrease in Paraguay’s imports from Argentina, primarily driven by reductions in the extensive margin of trade. I observed a 3% decline in the number of suppliers and a 5% decrease in the number of imported products. To elucidate the mechanisms, I analyse data on commercial and specific actions undertaken by the Argentine embassy in Paraguay. Results indicate that the ambassador’s absence corresponded with a substantial decrease in both major trade events and smaller, targeted activities, despite no change in the embassy’s budget allocation. The analysis is robust to various specifications, including different regional samples and trade volume thresholds. This research contributes to the literature on economic diplomacy by providing causal evidence of ambassadors’ role in facilitating international trade, particularly in establishing new trade relationships.

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Recommended citation: Riottini Depetris, F. (2024). "Do Ambassadors Matter? The effect of ambassadors on trade promotion." Master Thesis at Universidad de San Andrés.