Wheels up, deals down: The role of air travel in facilitating international trade in India

In-person business interactions remain an important but difficult-to-measure channel through which air transportation may shape international trade. This paper examines the role of in-person business meetings in India’s bilateral trade using a structural gravity model with bilateral trade data and directional air traffic data from 2015 to 2023. The results show that business air connectivity is positively associated with trade flows, with stronger effects for exports than for imports. In particular, indirect business passengers, namely those travelling through connecting flights, exhibit a larger association with trade than direct business passengers despite accounting for a smaller share of total traffic. Specifically, a 1% increase in indirect business passengers is associated with a 0.085% increase in expected exports and a 0.044% increase in expected imports. Counterfactual analysis further shows that, in the absence of COVID-19 aviation disruptions, India’s exports and imports in 2021 would have been 31% and 11% higher, respectively. By contrast, a baseline rollback of Open Skies arrangements would have reduced exports by 4.69% and imports by 1.81%. These results highlight the importance of in-person business interactions in facilitating trade and suggest that stable socioeconomic conditions and liberalized aviation policies help preserve the trade benefits generated by air travel.