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The facilitating role of visa policies on international trade and foreign direct investment

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This study is focused on the direction and magnitude of visa policies on bilateral trade and foreign direct investment (FDI), both of which often necessitate in-person contacts. Visa restrictions hinder cross-border travel deterring potential visitors and producing an inimical effect on trade and FDI. Liberal visa policies facilitate business travels and encourage companies engaging in international trade. This article analyzes the impact of visa restrictions using gravity-type models for the period of 2000–14 on the exports and FDI of Turkey. A panel data fixed-effects model helps elucidate time-variant and country-idiosyncratic characteristics of visa policies. The estimations indicate that visa restrictions have a significant negative effect on both trade and FDI. Two-step cluster analysis is also utilized to segment countries depending on the visa-free travel their citizens enjoy employing the Henley & Partners Visa Restrictions Index. Results suggest that effects of visa restrictions are higher for countries having higher travel freedom.
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Keywords: Trade modeling; fixed effects; foreign direct investment; gravity models; visa policy

Document Type: Research Article

Affiliations: Department of International Trade, Çankırı Karatekin University, Çankırı, Turkey

Publication date: October 1, 2016

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