Does International Travel Cause Economic Growth? Evidence from China’s Removal of Travel Restrictions on Foreigners

Abstract

International travel is a key channel of international knowledge diffusion and has been hypothesized to shape large cross-country differences in productivity and income. However, evidence supporting this hypothesis, especially from developing countries, remains scarce. This paper examines the effect of a novel historical natural experiment, China’s removal of restrictions on travel by foreigners to designated Open-to-Foreigners-Counties (OFCs), on regional economic outcomes. Using a difference-in-differences strategy, we find that removing travel restrictions on foreigners leads to a 7.4% increase in per capita industrial output for the OFCs in 1985-1991. The positive effects are larger in counties with more foreign equipment and greater industrial human capital. Additionally, the OFCs record more patents. We highlight the role of person-based international knowledge diffusion in the economic catch-up of technology recipient countries.

Keywords: International Travel, Opening-to-Foreigner-County Policy, International Knowledge Diffusion; Place-Based Policy

JEL Classification: O19, O33, O53