Introduction

After the fall of the Berlin Wall on November 9th, 1989 and the dissolution of the Soviet Bloc, western countries and firms entered eastern markets; inversely western markets are nowadays more open for eastern goods – trade no longer being organized by the Council of Mutual Economic Assistance (CMEA). Trade reorientation is one of Nauro Campos and Fabrizio Coricelli's (2002) “magnificent seven stylized facts of ten years of transition.” Simultaneously with this economical reorientation, we witnessed the births of new diplomatic relationships, while older ties were renewed.

But there exists some variance: some countries invested more than others in new diplomatic relations. France and the Netherlands are for instance very active on the diplomatic front. These countries both created no fewer than ten new embassies in Eastern Europe and the Former Soviet Union within a time span of less than ten years. Some other countries were less active: they opened smaller consulates, or – for the moment – opted to stay out. Arguably, the decision to open an embassy is foremost a political one, but there is an economic meaning as well.

This chapter goes in search of the economic rationale behind permanent representations, the so-called “foreign mission.” More specifically, we ask the empirical question whether diplomatic relationships could be associated with different trade intensities. Does a country with intensive missions abroad (like France or the Netherlands) export more than other countries if we control for other determinants of trade?