Do visas hinder international trade in goods?

Abstract

Travel visas impose additional costs to firms engaging in international trade. This paper exploits a natural experiment provided by the Schengen Agreement to document a large causal negative impact of visas on goods trade. The introduction of a visa, requested by a single Schengen Area member, considerably reduced bilateral trade flows of Ecuador and Bolivia with the members of the border-control free zone other than Spain. I show that the negative impact of visas is much larger for differentiated than for homogeneous products. By applying a general equilibrium framework, the paper shows that removing visas would increase welfare by 5% or more for some Sub-Saharan African countries and by 1,1% on average for developing countries. For policy makers this paper highlights the importance of including visa facilitation schemes into the provisions of trade agreements and economic partnerships.