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

Abstract

International travel 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 fills this gap by studying a novel historical natural experiment -- China’s removal of travel restrictions on foreigners to designated Open-to-Foreigners-Counties (OFCs). Utilizing the county-by-county rollout of the OFCs, we find that removing travel restrictions on foreigners led to a 7.4 percent 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. We highlight the role of person-based international knowledge diffusion in the economic catch-up of technology recipient countries.

Keywords: International Travel; China’s Opening-to-Foreigner-County Policy; Economic Growth; International Knowledge Diffusion

JEL Classification: O19, O33, O53