The Export-enhancing effects of Export Credit Guarantees : A micro-founded Gravity Model on Hermes Guarantees

International trade often presents firms with significant financial risks and credit constraints. Export credit guarantees (ECGs) are policy instruments designed to alleviate these frictions. This study investigates Germany's Hermes guarantee program (“Hermesdeckung”), theoretically framing ECGs as reducers of trade costs within a micro-founded Gravity model, and empirically assesses its impact on aggregate German export performance from 2000-2023. My analysis indicates that Hermes guarantees are generally associated with increased German export volumes, with benefits that can extend over several years. I show that these guarantees are particularly effective in promoting exports to higher-risk countries and that their impact varies across importer income levels and regions, notably aiding trade with middle-income nations. These findings provide an updated perspective on government-backed export support, suggesting that ECGs can facilitate trade by mitigating theoretically identified financial barriers.