By Jonas Bunte

A new working paper by Jonas Bunte (WU Vienna) and Faisal Z. Ahmed (Wellesley College) examines how governments support firms operating in international markets—and how companies respond when parts of that support temporarily weaken. The project starts from a motivating puzzle: while states routinely provide both diplomatic services and export finance, existing research typically studies these tools in isolation. Yet for firms facing uncertainty abroad, information and financing are closely intertwined.

The paper argues that firms treat these forms of state support as a unified portfolio. On the informational side, ambassadors provide market intelligence, introductions to local partners, and informal dispute mediation. On the financial side, export credit agencies offer insurance, guarantees, and loans that protect firms against commercial and political risk. The central claim of the project is that firms actively rebalance between these tools. When access to diplomatic information declines—for example, during an ambassadorial vacancy—the relative value of financial protection increases, leading firms to rely more heavily on export credit support.

To study this dynamic, the authors compile nearly three decades of monthly, deal-level data from the U.S. Export–Import Bank and match it with global records of ambassadorial appointments and vacancies. Ambassadorial vacancies serve as temporary informational shocks: they disrupt diplomatic support while leaving financial institutions unchanged. Using this research design, the working paper shows that firms are significantly more likely to seek export credit support during vacancy periods. Importantly, this increase is not driven by changes in the export credit agency’s behavior—its screening standards, country risk assessments, and deal sizes remain stable—indicating that the adjustment occurs on the firm side.

The project contributes to ongoing debates about economic statecraft and state capacity. Rather than viewing diplomacy and finance as separate policy domains, the findings suggest that they function as complementary components of a broader support system for firms operating in uncertain environments. More broadly, the research highlights how businesses adapt to gaps in administrative capacity—not by withdrawing from global markets, but by shifting across different forms of state support. The working paper offers a window into the Institute’s current research agenda on the political economy of trade, finance, and international risk.

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