Does International Travel Cause Economic Growth? Evidence from China’s Removal of Travel Restrictions on Foreigners
34 Pages Posted: 13 Aug 2019 Last revised: 31 Aug 2020
Date Written: August 10, 2019
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
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