# **1 Introduction**

Export Promotion Agencies (EPAs) are popular institutions, present in almost every country, aiming to facilitate the access of domestic firms to foreign markets. EPAs are among several other instruments of diplomacy aiming to boost exports. Despite the existence of private firms providing similar services, many EPAs in developing and developed economies are public entities and receive a significant amount of resources from taxpayers. This has motivated several recent studies that analyze the economic impact of these agencies on various dimensions of export performance. This paper introduces a novel database from the World Bank, in collaboration with the International Trade Center (ITC) in Geneva, describing the main characteristics of EPAs around the world and summarizes the findings of the literature on the economic impact of these agencies.

Exporting firms are usually larger, more productive, and pay higher wages than non-exporting firms, making export promotion an attractive objective for policy makers. In the literature, there are two main non-mutually exclusive hypotheses as to why exporting firms are more productive than non-exporting firms. The first hypothesis suggests a self-selection of the more productive firms into export markets.<sup>1</sup> The second hypothesis emphasizes the role of learning-by-exporting. The most prevalent view is that most efficient firms self-select themselves into the export market (see Roberts and Tybout [1997], Clerides et al. [1998], Melitz [2003], Bernard and Jensen [2004]). However, recent studies (see De Loecker [2007], Lileeva and Trefler [2010], and Atkin et al. [2016]) have found that improving foreign market access may increase the productivity of firms.<sup>2</sup> These studies may provide evidence-based support for policies aiming to facilitate the access of domestic products and firms into foreign markets.

The presence of market failures such as externalities and asymmetric information might also support some mechanisms of government-sponsored export promotion. Cadot et al. [2011] show evidence of positive externalities for exporters of similar products to those firms exporting for the same destinations. Also, a high entry cost for learning about foreign markets and uncertainty due to incomplete information can deter potential exporters from doing so [Allen, 2014]. If export promotion policies are effective towards promoting new exporters, increasing export value and/or facilitating export diversification, they will make additional gains from trade feasible.<sup>3</sup> Moreover, the uncertainty faced by firms regarding their chances to export may lead to a risk averse behavior

> 1Wagner [2007] provides a summary of evidence from studies testing these hypotheses using firm level data.

> 2The former conducts a randomized control trial (RCT) on rug manufacturers in the Arab Republic of Egypt and find that treatment firms report 16-26 percent higher profits relative to control firms.

> 3Copeland [2007] provides a critical review of the literature and emphasizes two sources of market failure that could justify this kind of intervention: information spillovers and asymmetries of information.

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