All Roads Lead to Rome: Global Air Connectivity and Bilateral Trade

52 Pages Posted: 13 Jul 2021 Last revised: 27 Aug 2023

See all articles by Zheng Wang

Zheng Wang

De Montfort University; GEP, University of Nottingham

Feicheng Wang

University of Groningen; Institute of Labor Economics (IZA), Bonn

Zhuo Zhou

Shanghai Academy of Social Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: July 11, 2021

Abstract

Using a unique itinerary-level global air traffic database, this paper proposes a novel instrumental variable to estimate the effect of in-person interactions on bilateral trade. Our identification strategy exploits variations in third-country connecting capacities driven by external travel demand in the global flight network to leverage exogenous variations in the air connectivity between two countries. Several findings stand out. First, air connectivity boosts trade between countries, especially for industries with a high reliance on relationship-specific investments. Second, trade in new products, relative to existing products, responds more positively to improved air travel links. Third, tentative evidence suggests that air connectivity is only to some extent substituted by online social media in facilitating trade.These findings confirm the role of in-person communications in reducing transaction costs associated with tacit knowledge. Our estimation approach also provides a useful tool for evaluating the social and economic impacts of a complex transport network.

Keywords: air connectivity, face-to-face communications, connecting flights, trade

JEL Classification: F1, F2, R4

Suggested Citation

Wang, Zheng and Wang, Feicheng and Zhou, Zhuo, All Roads Lead to Rome: Global Air Connectivity and Bilateral Trade (July 11, 2021). Available at SSRN: https://ssrn.com/abstract=3884374 or http://dx.doi.org/10.2139/ssrn.3884374

Zheng Wang (Contact Author)

De Montfort University ( email )

Department of Economics and Marketing
The Gateway
Leicester, LE1 9BH
United Kingdom

HOME PAGE: http://zhengwang.weebly.com/

GEP, University of Nottingham ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Feicheng Wang

University of Groningen ( email )

Groningen, 9717 JA
Netherlands

Institute of Labor Economics (IZA), Bonn

P.O. Box 7240
Bonn, D-53072
Germany

Zhuo Zhou

Shanghai Academy of Social Sciences ( email )

Shanghai Huaihai Middle Road 722 lane
Shanghai, shanghai
China

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