Optimizing Economic Diplomacy on a Tight Budget

By C.D. Howe Institute —— Bio and Archives April 16, 2014

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TORONTO, - "Government-to-government" relations, underpinned by high-level Canadian representation in foreign nations, such as an embassy, significantly boost the level of Canadian exports to those countries, according to a new C. D. Howe Institute report. In the study, entitled "The Impact of Diplomatic Representation Abroad on Canada's Exports," author Dan Ciuriak provides new insights into where, why and how economic diplomacy works best, and shows that an embassy or equivalent has in the past added more to trade than have additional consulates or trade offices in the same destination.

"As the federal government continues to prioritize "economic diplomacy" through its Global Market Action Plan, these findings strongly support the importance of economic diplomacy. With the government's diplomatic efforts running on a recently tightened budget, it is critical that scarce funding be allocated towards those countries and types of diplomatic presence—embassy, consulate or trade office—that will reap the largest benefits for Canadian exporters," said Ciuriak. Ciuriak finds having an embassy in an export destination country boosts total goods exports by 29 percent. The impact is stronger on exports excluding mined products (39 percent), but is lower for manufactures (9 percent). In contrast to the impact of an embassy, the impact of a consulate or trade office is very small and statistically insignificant. Embassies are particularly effective at reducing the inhibiting effect on Canadian exports in those countries with lower levels of economic freedom.

"The results suggest that there is a definite importance in the 'G2G' (government-to-government) relationship as distinct from the role of government in providing 'B2B' (business-to-business) trade facilitation," remarked Ciuriak, who added "The small effect for consulates might reflect the fact that many consulates have not historically had major trade promotion mandates - but it might also reflect the scale of operations: there is evidence that firms that access Canadian Trade Commissioner services gain a significant boost in exports relative to comparable firms that do not, but only a relatively small number of exporters actually make use of these services and the majority are small firms." Additionally, the results show clearly the positive impact on Canadian exports of the existence of free trade agreements between Canada and any given destination. Ciuriak concludes that there is a complex interaction between politics and business that is revealed by the connection between the level of trade, the role of the state in economic decision-making, and the level of diplomatic representation in a country. Trade is, at the end of the day, a "relationship" business, including political relationships. The C. D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada's trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada's most influential think tank. For the report, click here: