State Visits and International Trade

Author: Nitsch, Volker

Source: The World Economy, Volume 30, Number 12, December 2007 , pp. 1797-1816(20)

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Abstract:

Politicians travel extensively abroad, for various reasons. One purpose of external visits is to improve bilateral economic relations. In this paper, I examine the effect of state visits on international trade. Based on a large data set that covers the travel activities of the heads of state of France, Germany and the United States for the period from 1948 to 2003, I find that state and official visits are indeed positively correlated with exports. I first apply a gravity model of trade to control for other trade determinants and find that a visit is typically associated with higher exports by about 8 to 10 per cent; the results are sensitive to the type of visit (as they should). I then use a differences-in-differences specification to deal with the issue of reverse causality. The results show a strong, but short-lived effect of visits on bilateral exports growth, which is driven by repeated visits to a country. Additional support is provided by an exploratory instrumental vari-ables analysis.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1467-9701.2007.01062.x

Affiliations: 1: ETH Zurich

Publication date: 2007-12-01