Travelling Salesmen

The first act of freshly-elected German Chancellor Angela Merkel was to hop over the border to Paris and Brussels, then on to London. This is no coincidence: state visits are sine qua non for any respectable politician nowadays. There are many reasons for this, ranging from attempts to enhance political, cultural and economic relations to catering to domestic political needs. And, of course, improving exports: heads of state have been known to travel abroad with a bunch of business people in tow. But do state visits really promote international trade?

This is the question CESifo Network researcher Volker Nitsch addressed in his working paper "State Visits and International Trade", released this month. It makes for interesting reading.

Politicians do travel a lot. George W. Bush has just returned from a trip to Asia where he visited four countries. In 2003, he packed 21 countries in seven international trips. Even Mr Hermit himself, Kim Jong Il of North Korea, indulges in the sport: he has been abroad a whopping three times during his tenure, albeit only to Russia and China. Fidel Castro, by contrast, ranks almost as a well-seasoned traveller, with forays to Algeria, Venezuela, Spain, Argentina, Mexico and other sunny places.

But it was not always so. German President Heinrich Lübke never travelled abroad officially during his first five years in office, and he didn't make his first international visit until two years after being re-elected. Former Chilean dictator Augusto Pinochet hardly ever left the country. Once, invited by the Philippines, he had to turn his plane back midway when the invitation was withdrawn. On another occasion, after he had stepped down as President, he visited London –and got promptly arrested there.

But anecdote apart, state visits are a booming business. Heads of state or government merrily jet about the globe to attend pow-wows with their counterparts, sign treaties, launch bilateral projects, discuss closer economic co-operation, promote their interests and so on. Trade is often high on the agenda. As Mr Nitsch points out, state visits are the highest form of diplomatic contact between two countries, and they are often viewed as being effective.

Mr Nitsch used a large data set covering the travel activities of the German chancellor and the presidents of France and the United States between 1948 and 2003. The French presidents made a total of 558 visits during that period, with Germany as their top destination. The German chancellors' visits are almost a mirror of the French ones, with a total of 537 and France as the top destination. The US presidents made 418 state visits, with —surprise, surprise— France as their top destination. With all three heads of state, frequency of travel has increased considerably over the years.

First, Mr Nitsch applied a number of controls to his data in order to, for example, eliminate visits not related to trade, such as those to the UN General Assembly or such. Then, he ran the data through a so-called "gravity model", which essentially links the bilateral value of trade between two countries to their economic size and the distance between them.

Submitting his findings to a series of robustness checks, he found that on average there is indeed a positive relationship between state visits and increased exports, albeit not across the board, and not equally effective among heads of state. For instance, the data seem to indicate that visits by both France's Charles de Gaulle and Germany's Konrad Adenauer were followed by dips in exports. In contrast, Jimmy Carter and Helmut Kohl, and particularly Gerhard Schröder, seem to have been highly effective in promoting their country's exports, with marked increases after their visits. In general, state visits by German chancellors seem to have by far the largest effect on exports.

Another interesting finding is that there is no evidence of an association between visits and exports before 1970, but of a particularly strong one between 1971 and 1990. Results for the most recent years are less clear. Additionally, the effect of state visits on exports seems to result purely from repeated visits. A first visit, as a rule, affects exports growth only in the first year, if at all, and is then often followed by a decline in exports in subsequent years.

The bottom line? A state visit is typically associated with an increase in exports of about 8 to 10 percent. George W. Bush, by the way, came back from his latest visit to China with a contract for 70 Boeing airplanes in his pocket.

Volker Nitsch: State Visits and International Trade, CESifo Working Paper No.1582

• Other CESifo Working Papers dealing with trade
• Other CESifo Working Papers by Volker Nitsch
• CESifo Working Papers published in the past three months