International Business Travel: An Engine of Innovation?

Abstract

While business surveys often find that managers prefer face-to-face communication for negotiating deals and selling their product, there is reason to believe that face-to-face meetings are particularly important for the transfer of technology, because technology is best explained and demonstrated in person. This paper examines the role of inward business travelers in raising a country's rate of innovation by looking at business travel from the United States to seventy-four other countries during the years 1993-2003. We find that international business travel has a significant effect up and beyond technology transfer through international trade and foreign direct investment. A 10% increase in international business traveler arrivals leads on average to an increase in patenting of about 1%. There is also strong evidence that the impact on innovation depends on the quality of the technological knowledge carried by each business traveler. This study shows that international air travel may be an important channel through which cross-country income differences can be reduced. Our results on short-term cross-border labor migration raise also a number of new policy issues that are discussed.

Keywords: cross-border labor mobility, face-to-face communication, International technology transfer, patenting, tacit knowledge

JEL Classification: F20, J61, O33