Political risk represents an important hidden transaction cost that reduces international trade. This paper investigates the claim that German public export credit guarantees (Hermes guarantees) mitigate this friction to trade ows and hence promote exports. We employ an empirical trade gravity model, where we explicitly control for political risk in the importing country in order to evaluate the eect of export guarantees. The idea behind export promotion through public export credit agencies (ECAs) is that the private market is unable to provide adequate insurance for all risks associated with exports. As a consequence, rms' export activities are limited in the absence of insurance provision. Using a novel data set on guarantees we estimate the eect of guarantees in a static and dynamic panel model. We nd a statistically and economically signicant positive eect of public export guarantees on exports which indicates that export promotion is indeed eective. Furthermore, political risk turns out to be a robust determinant of exports and hence should be taken into account in any empirical model of trade.

Political risk represents an important hidden transaction cost that reduces international trade. This paper investigates the claim that German public export credit guarantees (Hermes guarantees) mitigate this friction to trade ows and hence promote exports. We employ an empirical trade gravity model, where we explicitly control for political risk in the importing country in order to evaluate the eect of export guarantees. The idea behind export promotion through public export credit agencies (ECAs) is that the private market is unable to provide adequate insurance for all risks associated with exports. As a consequence, rms' export activities are limited in the absence of insurance provision. Using a novel data set on guarantees we estimate the eect of guarantees in a static and dynamic panel model. We nd a statistically and economically signicant positive eect of public export guarantees on exports which indicates that export promotion is indeed eective. Furthermore, political risk turns out to be a robust determinant of exports and hence should be taken into account in any empirical model of trade.

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This paper studies German bank lending during the Asian and Russian crises, using a bank level data set, which has been compiled from credit data at the Deutsche Bundesbank. Our aim is to gain more insight into the pattern of German bank lending during financial crises in emerging markets. We find that German banks reacted to the Asian crisis mainly by reallocating their portfolios among emerging markets. This behaviour is consistent with active portfolio management and does not necessarily indicate a spontaneous reaction to the Asian crisis. By contrast, the banks' behaviour during the Russian crisis is characterised by a general withdrawal from emerging markets. The use of micro data allows us to analyse and to model bank heterogeneity with panel estimation techniques. We find that the lending of large commercial banks was less stable than the lending of public sector banks during the Asian crisis. Differences were not as pronounced during the Russian crisis.