Soft power and Germany's exports - First evidence from transaction data

A recent literature reports evidence showing that the rate of approval of the job performance of the leadership of ahome country among the people of a foreign country is important for the exports from the home country to thiscountry. These exports are larger, ceteris paribus, if this rate of approval is higher among the importers. This is knownas the soft power effect. These results are based on a standard gravity model that is estimated with aggregate data fortrade between the countries. While this approach takes care of differences in the characteristics of the destinationcountries of exports differences in the characteristics of the exporting firms and differences in the characteristics of thetraded goods are ignored. Using transaction data for German exports of goods this paper shows that the soft powereffect exists when differences in the destination countries and differences in the exporting firms and differences in thetraded goods are controlled for.