Economic Benefits Associated with the Visa Waiver Program - A Difference-in-Differences Approach

Abstract

This study evaluates the economic benefit that the Visa Waiver Program (VWP) brings to the United States, including increased tourist-business trips and reduced spending on visa control. Administered by Depart of Homeland Security (DHS), VWP enables participating country citizens to travel in the United States visa-free for up to 90 days for tourist and business purposes. Currently there are 36 countries participating in the program. The expansion of the VWP is subjected to sophisticate calculation of the benefit and cost of the program. However, few results are satisfying. Previous VWP cost-benefit analysis over-estimated the increased tourism benefits due to inefficient separation of secular trend from the program’s net effect. In the first part of this study, in order to capture the net effect of the program – the increased tourism and business trips due to VWP – the author conducts a quasi-experimental by introducing a control group (a non-VWP member country) to pair with a VWP member country using the difference-in-differences method. The results show a net effect of 3-4.5 more tourism/business trips per thousand population for selected VWP participating countries of the VWP (South Korea and Malta), and an increase of 5 percent in the ratio of tourism/business trips over all non-immigration trips. Put into a broader context, this result may indicate that the VWP has encouraged an additional 1.8 million to 2.7 million of tourist/business trips from all participating countries, and has added to the U.S. $6.9 billion to $10 billion of direct spending by those foreign visitors in 2010. The second part of the analysis is built on the existing evaluations of administration cost by GAO, consolidates and converts the results into a current context. It concludes that in 2010, because the VWP was in place, the U.S. government has saved from 1.9 billion to 3.2 billion for the cost of interviewing visitors. Altogether, this research provides more concrete evidence to contribute to the discussion of VWP future expansion.