Working Paper No. 1355

The Importance of Business Travel for Trade: Evidence from the Liberalization of the Soviet Airspace

Published: September 22, 2020Pages: 64Keywords: Trade costs; Air travel; Face-to-face communicationJEL-codes: F14; F15; R40

The Importance of Business Travel for Trade: Evidence from the Liberalization of the Soviet Airspace Bengt Söderlund


The strong negative relationship between geographical distance and trade is not well understood. I use the liberalization of the Soviet airspace to estimate the causal impact of business travel cost on trade. The liberalization radically reduced travel time between Europe and East Asia and was associated with a significant increase in trade. I find that the cost of business travel can account for most of the trade frictions (85.3%) that cause trade to sharply decline with distance. A plausible explanation for these results is that face-to-face interaction through business travel is important for trade, and that transporting people is costly.


Reference:

Söderlund, Bengt (2020), "The Importance of Business Travel for Trade: Evidence from the Liberalization of the Soviet Airspace". IFN Working Paper No. 1355. Stockholm: Research Institute of Industrial Economics (IFN).

Interdisciplinary European Studies

The European Union and the Return of the Nation State

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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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