Yes, Economic Diplomacy Works!

On the picture Professor Peter A.G. van Bergeijk and Selwyn J.V. Moons. Photography by Dick de Jager.

By Peter A.G. van Bergeijk and Selwyn J.V. Moons.

The design and management of bilateral relationships has become even more important in the new world “order” in which regional disintegration and an open confrontational approach to foreign policy make the headlines. The major lesson from the Great Depression – avoid protectionism – abruptly seems to have been forgotten: indeed, we are witnessing an unprecedented change in geopolitics with a clear impact on the international business environment and de modes and opportunities for economic diplomacy. Our recent Research Handbook on Economic Diplomacy clarifies that there is an important role for economic diplomacy in this context.

TheResearch Handbook offers relevant and focused contributions by 31 leading experts from five continents and provides a comprehensive set of detailed analyses of OECD countries, developing and emerging economies in Africa, Asia and Latin America. The contributions provide a unique perspective on both the heterogeneous dynamics of economic diplomacy and the tools to analyze the impact and efficiency of economic diplomats. The studies in the Research Handbookthereby reveal how and under which conditions economic diplomacy can be effective, providing clear guidance for evidence-based policy.

The Research Handbookoffers comprehensive analyses of state visits and trade missions (Volker Nitsch), export promotion agencies (Mario Cruz, Daniel Ledermanand Laura Zoratto) and embassies and consulates (Selwyn Moons and Remco de Boer).

This analysis of modioperandi is strengthened by consideration of new forms and new agents in economic diplomacy, such as business diplomacy (Désirée van Gorp), iDiplomacy (GorazdJustinek), the management science of commercial diplomacy (Olivier Naray) and the use of case studies (Renata Cavalcanti Muniz).

Comparative perspectives are also provided, for example for the major EU countries (Filippo Vergara Caffarelli and Giovanni Veronese), Central and Eastern Europe (Hugo Lapeyronie, Mathilde Maurel and Bogdan Meunier) and Latin America (Phil Compernolle and Mark Vancauteren). The comparative perspective also includes a meta-analysis on the effects of different instruments of economic diplomacy on international economic flows (Selwyn Moons).

Building on the economic diplomacy literature, Henri de Groot, Marcel van den Berg and Michiel de Nooij provide a cost benefit analysis of economic diplomacy, showing its important potential contribution to economic welfare. The study of positive economic diplomacy is thus further established and has a clear message: it works and contributes significantly to a nation’s welfare.

One of the important lessons from practice (KishanS. Rana) and science (Arjan Lejour) is the highly significant impact of economic diplomacy for developing and emerging economies. Bilateral economic diplomacy is important for building a good country image and to promote an emerging market as a reliable trading partner with high quality export products, especially in developing countries. It is a relatively more significant determinant of bilateral exports among African states compared to regional integration (Sylvanus Kwaku Afesorgbor) and highly influential in the trading relations with China (Fuchs).

New modes of economic diplomacy and (development cooperation) are being developed based on China’s pioneering approach to development (Arjan de Haan and Ward Warmerdam). Economic diplomacy, however, is not a panacea as Prahastuti Maharani) clarifies while discussing challenges such as lacking exporter preparedness, substandard logistic infrastructure and budgets that remain below those of neighboring countries.

Additionally, Andrew Rose, one of the seminal contributors to this literature moves beyond trade and investment promotion by also considering sanctions and soft power. Chapters on China’s trade and development policies (Andreas Fuchs, Arjan de Haan and Ward Warmerdam), sanctions against Iran (Sajjad Dizaji) and the consequences of Brexit and MAGA for the Liberal Peace (Mansoob Murshed). Discuss under which conditions negative economic diplomacy bites

What are the major findings and implications of recent research?

• First, economic diplomacy works and this is true both for positive and negative interaction. One can build on positive interaction to strengthen economic ties and similarly twitter tsunamisand increasing US reliance on economic sanctions will carry a significant cost.
• Second, uncertainty itself already reduces international specialization: the threat of trade disruption and discontinuation of treaties in itself influences perceptions and thereby the behaviour of consumers, firms and governments.
• Third a one size fits all approach does not work. Economic diplomacy should be aimed at the niche where its contribution can be most significant: complex products, complex markets and countries with diverging political, cultural and historical background.

One of the key topics that we currently face is to better understand the conditions under which trust rather than uncertainty can be created by economic diplomacy and how the contribution of trade to sustainable development can be strengthened globally, regionally and locally. The Research Handbook shows that economic diplomats and their interactions with states and hold the key to that challenge.

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About the authors:

Peter van Bergeijk (1959) is a professor of international economics at the Institute of Social Studies in The Hague, The Netherlands. He started researching economic diplomacy as part of his PhD thesis Handel endiplomatie (trade and diplomacy) at Groningen University (1990) and has since published many books and articles in leading journals. Peter has been chief trade economist of the Netherlands Directorate General for Foreign Economic Relations and also worked in private and central banking.

Selwyn Moons (1981) is a partner at PwC The Netherlands and visiting scholar at the Institute of Social Studies in The Hague, The Netherlands.Selwyn has a master degree in economics from the Erasmus University and a PhD from the Institute of Social Studies. His PhD thesis, published in 2017, researches the heterogeneous effects of economic diplomacy. Before his job at PwC Selwyn has been senior trade economist at the Netherlands Ministries of Economic Affairs and Foreign Affairs. He also held several management positions at these Ministries.
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