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The Importance of Business Travel for Trade: Evidence from the Liberalization of the Soviet Airspace

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Abstract

The strong negative relationship between geographical distance and trade is not well understood. I use the liberalization of the Soviet airspace to estimate the causal impact of business travel cost on trade. The liberalization radically reduced travel time between Europe and East Asia and was associated with a significant increase in trade. I find that the cost of business travel can account for most of the trade frictions (85.3%) that cause trade to sharply decline with distance. A plausible explanation for these results is that face-to-face interaction through business travel is important for trade, and that transporting people is costly.

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  • Söderlund, Bengt, 2020. "The Importance of Business Travel for Trade: Evidence from the Liberalization of the Soviet Airspace," Working Paper Series 1355, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1355
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    1. Eric Neumayer & Thomas Plümper & Matthew Shaikh, 2021. "The logics of COVID‐19 travel restrictions between European countries," Social Science Quarterly, Southwestern Social Science Association, vol. 102(5), pages 2134-2154, September.

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    More about this item

    Keywords

    Trade costs; Air travel; Face-to-face communication;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General

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