King Abdullah of Saudi Arabia is currently engaged in a state visit to the United Kingdom. Generally, the idea is that state visits are a waste of time and money, and besides some big stonking dinners and big security bills, nothing much happens despite very formal trade and treaty signings.
But here comes a research paper which checks this premise out and finds.....
State Visits and International Trade, Volker Nitsch, The World Economy. 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 variables analysis.
I promise, I will never moan about state visits again! :)
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