Bilateral trade impacts of temporary foreign visitor policy

Abstract

Using country-level panel data from 1950 to 2003, this paper critically examines the impact of the US Visa Waiver Program (VWP) on bilateral trade levels. Our empirical analysis uses a variety of specifications, estimators, and robustness checks, including a “random growth” specification that controls for selection bias from both time-varying and time-invariant unobserved country-specific characteristics. The results indicate that a temporary foreign visitor policy with less requirements, such as the US VWP, tends to increase the bilateral trade levels between the US and the selected VWP countries, especially for US exports. This suggests that VWP may have encouraged business travel and commerce enough such that there are export benefits from this less restrictive temporary foreign visitor policy of about 10–20% (~2–4% in tariff equivalent terms).