That is not a question that Michele Coscia and Frank Neffke, working with Growth Lab Director Ricardo Hausmann, really asked themselves a few years ago, but, in the context of the COVID-19 de facto shutdown of air travel, it is a question that their work can now answer.
At the time, they were looking at a different question. The Growth Lab's approach to development puts a special emphasis on the importance of knowhow. As opposed to information and codified knowledge that exists in books, computer files, graphs and algorithms, knowhow only exists in brains and moves very slowly from brain to brain through years of experience. So, moving knowhow quickly involves moving brains. The Growth Lab had explored this question by looking at labor and entrepreneurial mobility between firms, regions, and countries. But it occurred to them that the importance of knowhow might explain why firms rely so heavily on business travel. After all, why go to the expense of traveling - not just the direct cost of airline tickets and hotels - but the opportunity cost of time spent just moving people at sub-sonic speeds, if e-mail, Skype, FaceTime, and now Zoom can move terabytes of information at close to the speed of light? In fact, Figure 1 shows that expenditures in business travel have been growing fast, much faster than global GDP. So why move brains expensively if you can move bytes more cheaply?
Figure 1: Business Travel Volume Versus Global GDP [enlarge]
Growth of business travel and the global economy in the period 2011 -2016. The red line shows the estimated number of business trips abroad, the blue line an estimate of the expenditures on these trips. The green line is provided as a reference and depicts global GDP. All quantities are indexed by levels in 2011.
Mapping the Business Travel Network
To answer their question, the researchers needed to map the flow of global business travel. To do so, they turned to aggregated and anonymized data made accessible for the duration of the research by the Mastercard Center for Inclusive Growth that shed light on corporate credit or debit card foreign spend in business travel for the period 2011-2016. The idea is simple: if business travelers use their corporate cards on international business trips, their travel will be reflected in these data.
To get a sense of this massive amount of new data, the team visualized it as a network (shown below in Figure 2), where nodes are countries (with sizes proportional to their GDP) and links express the intensity of travel from passengers with cards issued in one country to another. To make the graph more tractable, it only shows the two most important destinations for each country of origin, controlling for each country's overall participation in business travel. The network showed a lot of structure: some countries are quite central in the network, while others are much more disconnected.
Figure 2: Global Business Travel Network [enlarge]
The figure shows the network of global business travel. Nodes in this network are countries, colored by their continents. To not unnecessarily clutter the graph, we only retain the top two business-travel destinations per country. Links show the amount of business travel between these countries, with the color showing whether this amount is exceptionally large given the countries’ overall participation in business travel.
Impact of Business Travel's Diffusion of Knowhow on National Economies
Does it matter? Coscia, Neffke, and Hausmann hypothesized that if business travel is about moving knowhow from one country to another, it should impact the productivity of the industries that receive that knowhow. If the industry produces goods that can be exported, the extra knowhow should show up in an increase in the competitiveness and exports of that industry. For instance, if a country manages to attract many business travelers from Germany, it is likely that the car industry, one of Germany’s main export industries, increases its growth rate in the host country. Similarly, in employment data, we should see the car industry expand the number of establishments and employees. And that is exactly what they found, leading to a paper just published in the prestigious journal Nature Human Behaviour. Countries grow new industries and expand existing ones if they often have previously been visited by business travelers from other countries that specialize in those industries.
To be precise, This finding is not just a correlation; by exploiting exogenous differences in bilateral visa regimes - which only affect flows of people – in this case of business travelers – not of capital or digital communication - the researchers were able to show that business travel actually causes economic growth.
So, for example, what would happen if Japanese businesses stopped traveling? According to the paper's estimations, South Korea, China, Vietnam, Thailand and the Philippines would be most affected (see Figure 3), but the impact would be felt significantly in countries as diverse as India, Germany, the US and Saudi Arabia. The drop-down menu in Figure 3 allows asking this question for any other country in the data set as well. Figure 4 summarizes these graphs and shows which countries contribute most to the global diffusion of knowhow through its business travelers to all countries in the world.