What are they and what do they aim to do?
Export Credit Agencies (ECAs) help finance exports by providing direct credit, credit guarantees, or credit insurances. Direct credit may be provided either to the exporting firm (allowing them to supply goods on credit) or to the importing firm (allowing them to buy goods with cash). Credit guarantees facilitate exporter or importer borrowing from commercial banks. Finally, insurance underwrites the value of exports provided on credit. In all cases, the ECA bears the risk of default by the firms involved. As ECAs tend to support lending or guarantees that would be unprofitable for private sector firms, they are usually either public sector, or a combination of public and private sector. ECA support tends to cover all sectors, but take up is greater in exporting industries.
In the UK, export credit is provided by UK Export Finance (UKEF) which is the operating name of the Export Credits Guarantee Department (ECGD).
Key Findings
Do ECAs increase exports? Overall, the evidence suggests that ECAs are a fairly effective way to increase exports. A higher proportion of studies report positive effects compared to more costly Export Promotion Agency support (see our EPA toolkit).
Can ECA support improve other aspects of firm performance? In contrast to EPAs, we know less about the impact of ECAs on firm performance, including whether increased exports crowd out domestic sales.
Which types of ECA support are most effective? We don’t have much evidence, but what we have suggests (cheaper) insurance provision may be more cost-effective than (more expensive) credit provision. We need to do more to understand cost-effectiveness.
For which countries or firms are ECAs most effective? We don’t know, which suggests that targeting on the basis of markets, firm size, sector or product characteristics would need to be based on theoretical considerations (e.g. around barriers to entry) and may not necessarily improve scheme performance.
Is ECA support in the UK effective? All of the evidence comes from overseas examples; we do not have any high quality evidence on whether these schemes work in the UK.
How effective are they?
Five of eight studies find a positive relationship between ECA support and increased exports. Two studies find mixed effects, with one finding positive effects only after excluding the aerospace industry, and another finding positive effects for insurance but not direct lending or credit guarantees. Another study finds no effect.
Only one study looks at the impact of ECA support on other aspects of firm performance finding a positive effect on employment and sales.
There is some evidence that insurance provision may be more cost-effective than credit provision. Six studies find positive effects for insurance while one finds no effect. Two studies estimate the combined effect of guarantees and direct lending with one study finding a positive effect and another finding no effect.
One study finds that ECA support is most effective at increasing exports to industrial countries. However, ECA support became more effective at increasing exports to non-industrial countries after new regulations set minimum premiums.
Evidence on whether specific types of firms or industries benefit is limited and findings mixed. One study finds that small firms benefit less, while a second study finds the opposite. One study finds that ECA support is effective only once the aerospace industry is excluded.
Only one study examines the effect of ECA support in the UK. The study finds that expenditure on subsidies for export insurances provided by the ECGD had no impact on the value of UK exports as a share of GDP. Note, however, that this study uses a less robust impact evaluation method than a number of the studies that find positive effects.
Are ECAs cost effective?
Two studies provide cost effectiveness information.
One, from Germany, finds that every pound covered by insurance yields £1.70 in exports to industrial countries. For exports to non-industrial countries, every pound covered by insurance yields £0.65 in exports.
One study from the US finds that (once the aerospace industry is excluded from the analysis) every pound of credit or insurances yields £1.13 in exports.