DP7829 International Business Travel: An Engine of Innovation?

Author(s): Nune Hovhannisyan, Wolfgang Keller
Publication Date: May 2010
Date Revised: May 2011
Keyword(s): cross-border labor mobility, face-to-face communication, International technology transfer, patenting, tacit knowledge
JEL(s): F20, J61, O33
Programme Areas: Labour Economics, Public Economics, International Trade and Regional Economics, Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7829

While it is well known that managers prefer in-person meetings for negotiating deals and selling their products, face-to-face communication may be particularly important for the transfer of technology because technology is best explained and demonstrated in person. This paper studies the role of short-term cross-border labor movements for innovation by estimating the recent impact of U.S. business travel to foreign countries on their patenting rates. Business travel is shown to have a significant effect up and beyond technology transfer through the channels of international trade and foreign direct investment. On average, a 10% increase in business travel leads to an increase in patenting by about 0.3%. We show that the technological knowledge of each business traveler matters by estimating a higher impact for travelers that originate in U.S. states with substantial innovation, such as California. Moreover, the business traveler effect on innovation also varies across industries. This study provides initial evidence that international air travel may be an important channel through which cross-country income differences can be reduced. We also discuss a number of policy issues in the context of short-term cross-border labor movements.