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On the detrimental impact of visa restrictions on bilateral trade and foreign direct investment

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  • Neumayer, Eric

Abstract

This article estimates the effect of visa restrictions on bilateral trade flows and foreign direct investment (FDI) stocks. By raising the costs of travel and deterring some visitors, visa restrictions hamper personal contact across borders, which is detrimental to trade and FDI. Employing a standard gravity-type model in a global dyadic country sample, I estimate that if one country unilaterally requires a visa from nationals of the other country with no reciprocal restriction in place by the partner country, this lowers bilateral trade and FDI by up to 19 and 25 per cent, respectively. If both countries require a visa from nationals of the other country, the effect on trade is larger, but less than double, at up to 28 per cent, while the effect on FDI is essentially the same as for unilateral restrictions. With such substantial negative effects, it is at least questionable whether many of the existing visa restrictions would pass a cost-benefit test.

Suggested Citation

  • Neumayer, Eric, 2011. "On the detrimental impact of visa restrictions on bilateral trade and foreign direct investment," LSE Research Online Documents on Economics 37226, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:37226
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    File URL: http://eprints.lse.ac.uk/37226/
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    Cited by:

    1. Tekleselassie, Tsegay Gebrekidan, 2016. "Three essays on the impact of institutions and policies on socio-economic outcomes," Economics PhD Theses 1316, Department of Economics, University of Sussex Business School.
    2. Volker Nitsch, 2019. "Passport, please! Travels, travails and trade," Applied Economics Letters, Taylor & Francis Journals, vol. 26(15), pages 1274-1278, September.
    3. Kikuvi, Magdalane Malinda, 2024. "Free Movement of Persons and Bilateral Trade in COMESA: Evidence from Kenya," African Journal of Economic Review, African Journal of Economic Review, vol. 12(1), March.
    4. Veysel Avsar, 2020. "Travel Visas and Trade Finance," Economics Bulletin, AccessEcon, vol. 40(1), pages 567-573.
    5. Chi, Pei-Yu & Lee, Kuei-Chun & Chang, Kuo-I, 2022. "Causal effect of tourist visa exemption schemes on international tourist arrivals," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 427-449.
    6. KOMORIYA Yoshimasa, 2014. "How the Movement of Natural Persons Agreement Could Fuel FTAs," Discussion papers 14041, Research Institute of Economy, Trade and Industry (RIETI).
    7. Camila Gracheva & Leonid Polishchuk & Koen Schoors & Alexander Yarkin, 2015. "Institutions and Visa Regimes," HSE Working papers WP BRP 114/EC/2015, National Research University Higher School of Economics.
    8. Tsui, Wai Hong Kan & Fung, Michael Ka Yiu, 2016. "Analysing passenger network changes: The case of Hong Kong," Journal of Air Transport Management, Elsevier, vol. 50(C), pages 1-11.
    9. Daniel Felsenstein & Michael Beenstock & Ziv Rubin, 2015. "Visa Waivers, Multilateral Resistance and International Tourism: Some Evidence from Israel," ERSA conference papers ersa15p187, European Regional Science Association.
    10. Natalia Kapelko & Natalya Volchkova, 2013. "Export costs of visa restrictions," Working Papers w0195, New Economic School (NES).
    11. Robert A. Lawson & Saurav Roychoudhury, 2016. "Do travel visa requirements impede tourist travel?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 40(4), pages 817-828, October.
    12. Wai Hong Kan Tsui & Faruk Balli & David Tat Wei Tan & Oscar Lau & Mudassar Hasan, 2018. "New Zealand business tourism," Tourism Economics, , vol. 24(4), pages 386-417, June.
    13. Michael Beenstock & Daniel Felsenstein & Ziv Rubin, 2015. "Visa waivers, multilateral resistance and international tourism: some evidence from Israel," Letters in Spatial and Resource Sciences, Springer, vol. 8(3), pages 357-371, November.
    14. Mustafa Kahveci, 2019. "From Spring to Winter? An Analysis of "Arab Spring" Impacts on Turkey and Mena Region Foreign Trade with Gravity Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(12), pages 1320-1334, December.
    15. Tien Duc Pham & Son Nghiem & Larry Dwyer, 2018. "The economic impacts of a changing visa fee for Chinese tourists to Australia," Tourism Economics, , vol. 24(1), pages 109-126, February.
    16. Orazbayev, Sultan, 2017. "International knowledge flows and the administrative barriers to mobility," Research Policy, Elsevier, vol. 46(9), pages 1655-1665.
    17. Camilo Umana Dajud, 2016. "Do Visas Hinder International Trade in Goods?," Working Papers 2016-30, CEPII research center.
    18. Umana-Dajud, Camilo, 2019. "Do visas hinder international trade in goods?," Journal of Development Economics, Elsevier, vol. 140(C), pages 106-126.
    19. Arif, Imran, 2019. "How Tall Are the Paper Walls? Barriers to International Mobility and Technology Diusion," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 49(2), October.
    20. Andrés Artal-Tur & Vicente J. Pallardó-López & Francisco Requena-Silvente, 2016. "Examining the impact of visa restrictions on international tourist flows using panel data," Estudios de Economia, University of Chile, Department of Economics, vol. 43(2 Year 20), pages 265-279, December.

    More about this item

    Keywords

    trade; investment; visa; gravity; travel;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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