U.S. International Business Travel: 

Its Impact on U.S. Merchandise Exports 

by Maksim Belenkiy and David Riker 

Office of Competition and Economic Analysis 

November 2012 

Manufacturing and Services Economics Briefs are produced by the Office of Competition and Economic Analysis of 

the International Trade Administration’s Manufacturing and Services unit. A complete list of reports, along with 

links to other trade data and analysis, is available at www.trade.gov/mas/ian. 
Manufacturing and Services Economics Brief No. 10 

ii U.S. International Business Travel – Novemeber2012

Acknowledgements 

We would like to thank Alis Asadurian, Joseph Flynn, Phillip McCalman and the Office 

of Travel and Tourism Industries for helpful suggestions. 
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U.S. International Business Travel iii 

Contents 

Acknowledgements ......................................................................................................................... ii

Contents ......................................................................................................................................... iii

Executive Summary ........................................................................................................................ v

Introduction ..................................................................................................................................... 1

Data on International Travel and Trade .......................................................................................... 2

The Effect of Outbound Business Travel on U.S. Exports ............................................................. 4

Value of a Business Traveler in U.S. Exports ................................................................................ 7

Concluding Remarks ....................................................................................................................... 9

References ..................................................................................................................................... 11

Technical Appendix ...................................................................................................................... 13

Tables 

Table 1 - List of Regions Included in the Analysis ........................................................................ 2

Table 2 - 2009 Share of U.S. Business Travelers, Leisure Travelers, and Exports by Region ...... 3

Table 3 - OLS Econometric Model of Exports ............................................................................... 4

Table 4 - First-Stage Model of the Number of Business Travelers ................................................ 5

Table 5 - Second-Stage Model of U.S. Merchandise Exports ........................................................ 6

Table 6 - Alternative IV Model With Lagged Effect on Business Travel ...................................... 7

Table 7 - Instrumental Variables Model of Exports Without Trade Cost ....................................... 8

Table 8 - Marginal Returns to Business Travel in 2009 ................................................................. 9

 
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iv U.S. International Business Travel – Novemeber2012

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U.S. International Business Travel v 

Executive Summary 

 Achieving the National Export Initiative goal of doubling U.S. exports within five years 

will require market strategies that increase the competiveness of U.S. industries. Outbound U.S. 

international business travel is likely to have a key role. It helps U.S. industries establish their 

presence and brand appeal abroad. It brings them face-to-face with qualified potential buyers, 

agents, distributors, and other business partners and provides them with first-hand knowledge of 

overseas markets. U.S. international business travel, in turn, is facilitated by governmentsponsored trade missions and private industry efforts. In this economics brief, we quantify the 

economic benefits of U.S. international business travel in terms of the dollar value of U.S. 

merchandise exports that it generates. 

We find that: 

 U.S. outbound international business travel has a significant, positive effect on the U.S. 

merchandise exports; 

 The impact of outbound international business travel on trade is generally higher for countries 

that are likely more dissimilar to the United States in terms of culture, language and other 

factors that influence U.S. brand knowledge; 

 Each additional international business trip increases U.S. merchandise exports to the visited 

country by $36,693 per year, on average. 

 For the National Export Initiative priority countries of Brazil, China and India, U.S. 

merchandise exports will increase by an average of $53,338, $66,587, and $26,176, 

respectively, for each additional outbound international business trip. 

 
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vi U.S. International Business Travel – Novemeber2012

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International Trade Administration 

U.S. International Business Travel 1 

Introduction 

Ninety-five percent of the world’s consumers reside outside of the United States.1

 This 

fact suggests vast opportunities for U.S. firms to expand into foreign markets. To be a successful 

exporter, a firm needs to make its goods and services visible in foreign markets and to establish 

international distribution channels. U.S. international business travelers facilitate trade in 

manufactured goods through face-to-face interactions. They negotiate sales, promote brands, 

and establish joint ventures. The resulting expansion of a country’s exports can generate 

significant benefits for the U.S. economy. Although the expenditures of outbound U.S. 

international business travelers are counted as U.S. services imports, these marketing efforts are 

likely to facilitate a significant expansion of U.S. exports of goods and services. 

In this economics brief, we specifically ask: How large is the increase in U.S. 

merchandise exports generated by outbound U.S. international business travel? We answer this 

question using an econometric model of the relationship between outbound U.S. international 

business travel and U.S. merchandise exports. We derive our econometric specification by 

incorporating international business travel into a model of international trade.2

 In this model, the 

number of international business travelers to each country is a choice of each firm, with costs 

and benefits. We assume that firms undertake marketing in order to reach an expanded set of 

consumers in foreign markets. Insufficient knowledge about U.S. brands may limit demand for 

U.S. merchandise exports. In response, firms increase international business travel. Thus, in our 

model U.S. merchandise exports and U.S. international business travel are jointly determined. 

The results of our model establish a positive relationship between U.S. outbound 

international business travel and merchandise trade without observing whether each business trip 

directly contributed directly to additional sales. We find that the effect of business travel on 

merchandise trade is higher for countries that are likely more dissimilar to the United States in 

terms of language and culture. 

 

1

Report to the President on the National Export Initiative, U.S. Department of Commerce (2010).

2

Theoretical model of international business travel and trade available from the authors upon request. 
Manufacturing and Services Economics Brief No. 10 

2 U.S. International Business Travel – November 2012

Data on International Travel and Trade 

The data on business and leisure travel are from the outbound U.S. travel and tourism 

statistics published by the Office of Travel and Tourism (OTTI) of the U.S. Department of 

Commerce. This publication provides a summary of responses to OTTI’s annual Survey of 

International Air Travelers (SIAT). OTTI reports the fraction of business and leisure travelers to 

thirty-six regions (defined as either a single country or a set of countries). To construct the 

numbers of business and leisure travelers, we multiply the shares of business and leisure 

travelers for each region and year by the total numbers of travelers by type and year. The 

resulting panel dataset contains 294 region-year observations. 

From these thirty-six regions, we focus on the twenty-one regions listed in Table 1, which 

all have complete data for the period from 1996 to 2009. Canada and Mexico are not included in 

our analysis. The SIAT only includes international air travelers from the United States. Since 

Canada and Mexico can be easily reached by land, the volume of business travel to these two 

countries is undercounted by the air travel survey. 

Table 1 - List of Regions Included in the Analysis

Africa Hong Kong South Korea 

Australia India Spain 

Caribbean Ireland Switzerland 

Central America Italy Taiwan 

China Japan United Kingdom 

Eastern Europe Middle East 

France Netherlands 

Germany South America 

We examine bilateral export volumes between the United States and the twenty-one 

regions for the period from 1996 to 2009. We aggregate the FAS value of U.S. merchandise 

exports to the six multi-country regions (Africa, Caribbean, Central America, Eastern Europe, 

Middle East and South America) by adding the corresponding value of exports to the countries in 

these regions. The total FAS value of U.S. merchandise exports in 2009 was $651 billon. After 

aggregating and matching the data to the international travel counts, the total FAS value of U.S. 
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U.S. International Business Travel 3 

merchandise exports from our set of twenty-one regions is $554 billion in 2009, which is 85 

percent of the global total. 

Table 2 reports the share of U.S. business travelers, leisure travelers, and merchandise 

exports by region in 2009. The regions that account for the largest shares of U.S. merchandise 

exports – China, Japan, the Middle East, South America, and the United Kingdom – also account 

for some of the largest shares of business travelers. 

Table 2 - 2009 Share of U.S. Business Travelers, Leisure Travelers, and Exports by Region 

 

Region 

Share of Total 

Business Travelers Leisure Travelers U.S. Exports 

Africa 5% 3% 4% 

Australia 2% 2% 3% 

Caribbean 8% 19% 3% 

Central America 4% 6% 3% 

China 6% 4% 10% 

Eastern Europe 4% 4% 1% 

France 5% 6% 4% 

Germany 7% 5% 6% 

Hong Kong 4% 2% 2% 

India 4% 4% 2% 

Ireland 2% 2% 1% 

Italy 4% 6% 2% 

Japan 9% 4% 7% 

Korea 4% 6% 4% 

Middle East 7% 2% 7% 

Netherlands 3% 8% 4% 

South America 7% 2% 9% 

Spain 2% 4% 1% 

Switzerland 3% 2% 2% 

Taiwan 3% 2% 3% 

United Kingdom 10% 8% 6% 

Source: Authors calculations 

We construct measures of shipping costs and aggregate demand in each region to control 

for determinants of the volume of international merchandise trade in conventional gravity 

models. We measure the size of the market in each region as the GDP of the country or the 
Manufacturing and Services Economics Brief No. 10 

4 U.S. International Business Travel – November 2012

combined GDPs of the group of countries. The GDP data are from United Nations national 

accounts. We use the ratio of the CIF value of U.S. imports from the region to the customs value 

of these imports as a proxy for the cost of shipping the goods from the United States to the 

region in each year. The CIF ratio reflects the international distance and transport and insurance 

costs per unit of distance. The ratios in the sample range from 1.009 to 1.077. 

The Effect of Outbound Business Travel on U.S. Exports 

We use the panel dataset to estimate the effect of business travel on U.S. merchandise 

exports. To control for a variety of country characteristics, including barriers to merchandise 

trade, our econometric specification controls for country fixed effects. Since the United States is 

the source country for all of the trade flows in the dataset, the year fixed effects in the 

specification control for the size of the U.S. production base and production costs. We apply 

ordinary least squares (OLS) to obtain the baseline estimates. We report these estimates in Table 

3. The OLS estimate implies that a 10 percent increase in the number of business travelers, 

holding constant the other explanatory variables, increases U.S. merchandise exports by 

approximately 2.84 percent. 

Table 3 - OLS Econometric Model of Exports* 

Variables Coefficients 

Gross Domestic Product 0.579 

(0.064) 

Trade Cost -4.875 

(1.914) 

Business Travelers 0.284 

(0.042) 

Year Fixed Effects Included 

Region Fixed Effects Included 

R-Squared 0.97 

Number of Observations 294 

*All variables in logs (standard error in parentheses). The dependant variable is U.S. exports to the 

region in the year. 

Source: Author’s calculations 

However, our theoretical model indicates that the OLS estimates will be biased, since 

U.S. international business travel is jointly determined with U.S. merchandise exports. To 
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U.S. International Business Travel 5 

correct this bias, we use the number of leisure travelers to the region as an instrument for the 

number of U.S. business travelers to the region. We present the instrumental variables (IV) 

estimates in two stages. In the first-stage, we confirm that the number of international leisure 

travelers to a region is correlated with the number of U.S. business travelers to the region. This 

is the first requirement of a valid instrumental variable and Table 4 reports the results of the firststage estimation. The results of the second-stage estimation are reported in Table 5. We find 

that the estimated coefficient on the number of international business travelers increases to 0.46. 

This elasticity implies that a 10 percent increase in the number of business travelers increases the 

value of U.S. merchandise exports by approximately 4.6 percent.3 

Table 4 - First-Stage Model of the Number of Business Travelers*

Variables Coefficients 

Gross Domestic Product 0.276 

(0.082) 

Trade Cost 4.385 

(2.610) 

Leisure Travelers 0.515 

(0.063) 

Year Fixed Effects Included 

Region Fixed Effects Included 

 

R-Squared 0.871 

Number of Observations 294 

*All variables in logs (standard error in parentheses). The dependant variable is the number of business 

travelers. The instrumental variable is the number of leisure travelers to the region in the year. 

Source: Author’s calculations 

As a sensitivity analysis, we re-estimated our model in Table 5 omitting China and then 

South America from the estimation sample. The purpose of this analysis was to test whether the 

estimated elasticity is sensitive to the inclusion of these two large destination regions, which 

could be outliers that drive the elasticity estimate. We find that the estimated elasticity is 0.436 

when China is excluded and 0.435 when South American is excluded. In both cases, these 

elasticities are close to the elasticity reported in Table 5. The results indicate that the elasticity 

estimate is not sensitive to the set of countries included in the estimation sample. 

 

3

 We performed a Hausman test of whether OLS or IV is an appropriate estimator for our econometric specification. 

We reject the null hypothesis of the Hausman test (that the OLS estimator is consistent) in favor of the IV estimates. 
Manufacturing and Services Economics Brief No. 10 

6 U.S. International Business Travel – November 2012

Table 5 - Second-Stage Model of U.S. Merchandise Exports*

Variables Coefficients 

Gross Domestic Product 0.518 

(0.069) 

Trade Cost -5.552 

(1.878) 

Business Travelers 0.460 

(0.087) 

Year Fixed Effects Included 

Region Fixed Effects Included 

 

R-Squared 0.968 

Number of Observations 294 

*All variables in logs (standard error in parentheses). The dependant variables are the U.S. exports to the 

region in the year and the number of business travelers. The instrumental variable is the number of 

leisure travelers to the region in the year. 

Source: Author’s calculations 

We performed a second sensitivity analysis to provide further support for the validity of 

the instrumental variable. The second requirement of a valid instrumental variable is that it 

should not be correlated with the error term in the export equation. This issue is addressed in 

part by including the shipping cost measure in our econometric specification. The number of 

leisure travelers could be correlated with the cost of shipping merchandise. By controlling for 

the cost of shipping goods, we ensure that the error term does not include shipping costs and is 

not likely to be correlated with the number of leisure travelers to the region. We also considered 

using lagged correlation as a way to further reduce the likelihood of estimation bias. 

Specifically, we model exports in each year as a function of the number of business travelers in 

the prior year. In this case, the instrumental variable is the number of leisure travelers in the 

prior year. This should further reduce or eliminate correlation between the number of business 

travelers and the error term of the export equation. Table 6 reports this analysis. The elasticity 

estimate for this alternative specification is 0.447, which is still close to the estimate in Table 5. 
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U.S. International Business Travel 7 

Table 6 - Alternative IV Model With Lagged Effect on Business Travel*

Variables Coefficients 

Gross Domestic Product 0.491 

(0.075) 

Trade Cost -4.363 

(2.033) 

Business Travelers 0.447 

(0.102) 

Year Fixed Effects Included 

Region Fixed Effects Included 

 

R-Squared 0.964 

Number of Observations 294 

* All variables in logs (standard error in parentheses). Dependant variable is U.S. exports to the region in the year; 

instrumental variable is the number of leisure travelers to the region in the prior year. 

Source: Author’s calculations 

As a third sensitivity analysis, we re-estimated the model without the shipping cost 

measure. Although the shipping cost measure has a significant negative effect on U.S. 

merchandise exports in the unrestricted model in Table 3, its omission from the specification 

does not have a significant effect on the estimated elasticity with respect to the number of 

international business travelers. Table 7 reports the additional econometric estimates. 

Value of a Business Traveler in U.S. Exports 

Finally, we estimate the dollar value of the impact of outbound U.S. international 

business travelers on U.S. merchandise exports. Specifically, we calculate the marginal change 

in the value of the exports with respect to each additional U.S. business traveler, based on 

estimated elasticity of U.S. exports with respect to international business travel, the values of 

exports and the number of travelers reported for 2009. 

 
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8 U.S. International Business Travel – November 2012

Table 7 - Instrumental Variables Model of Exports Without Trade Cost* 

Variables Coefficients 

Gross Domestic Product 0.554 

(0.067) 

Trade Cost Not Included 

Business Travelers 0.466 

(0.089) 

Year Fixed Effects Included 

Region Fixed Effects Included 

 

R-Squared 0.966 

Number of Observations 294 

* All variables in logs (standard error in parentheses). Dependant variable is U.S. exports to the region in the year; 

instrumental variable is the number of leisure travelers to the region in the prior year. 

Source: Author’s calculations 

We find that a U.S. business traveler generates $36,693 in additional U.S. exports on 

average across the countries. We note, for example, the values for China and the Netherlands 

($66,587 and $69,590) are far above the average; and the value for the United Kingdom 

($27,321) is below the average. Table 8 reports the results for each of the twenty-one regions. 

The estimates can be further refined using a measure of the intensity of each international 

business trip, like the number the nights spent in the country. In our main estimation, the region 

and year fixed effects account for systematic differences in travel intensity between regions and 

between years. However, the estimated dollar values in Table 8 do not account for travel 

intensity. They represent the marginal contribution of each business trip, not the marginal 

contribution of each travel day. To approximate the latter, we divide the dollar-value estimates 

in Table 8 by 18.4, the average number of nights of U.S. overseas business trips in 2009. 

 
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U.S. International Business Travel 9 

Table 8 - Marginal Returns to Business Travel in 2009

Region Returns per Trip (US$) Returns per Travel Day (US$) 

Africa $33,467 $1,819 

Australia $65,288 $3,548 

Caribbean $13,353 $736 

Central America $38,414 $2,088 

China $66,587 $3,619 

Eastern Europe $10,088 $548 

France $29,067 $1,580 

Germany $35,991 $1,956 

Hong Kong $27,232 $1,480 

India $26,176 $1,423 

Ireland $24,941 $1,355 

Italy $20,045 $1,089 

Japan $33,692 $1,831 

Korea $48,444 $2,633 

Middle East $40,991 $2,228 

Netherlands $69,596 $3,782 

South America $53,338 $2,899 

Spain $29,997 $1,630 

Switzerland $36,656 $1,992 

Taiwan $39,871 $2,166 

United Kingdom $27,321 $1,485 

Average $36,693 $1,994 

Source: Author’s calculations 

Concluding Remarks 

The results of our model establish a positive relationship between U.S. outbound 

international business travel and merchandise trade without observing whether each business trip 

directly contributed directly to additional sales. By calculating marginal dollar value of a 

business trip to a set of countries and regions, we find that the effect of business travel on 

merchandise trade is higher for countries that are likely more dissimilar to the United States in 

terms of language and culture. This dissimilarly may contribute to lower brand knowledge of 

U.S. products. Accordingly, our results may provide a guide of how to allocate scarce business 

travel resources. This analysis may be particularly useful for small and medium size businesses 
Manufacturing and Services Economics Brief No. 10 

10 U.S. International Business Travel – November 2012

that are looking to enter export markets without direct access to global distribution and 

marketing networks. 

We estimate that each additional international business trip will increase U.S. 

merchandise exports to the visited country by $36,693 per year, on average. For the NEI priority 

countries of Brazil (as proxied by South America), China and India, U.S. merchandise exports 

will increase by $53,338, $66,587, and $26,176, respectively, on average. The impact of 

outbound business travel on trade varies considerably across the twenty-one destination regions 

that we analyze. 

Based on these estimates, we conclude that trade missions and private industry efforts 

that provide first-hand knowledge of overseas markets and bring U.S. companies face-to-face 

with qualified potential buyers, agents, distributors, and other business partners can provide a 

significant boost to U.S. exports of goods, and probably also to U.S. exports of services, by 

facilitating outbound international business travel. 
International Trade Administration 

U.S. International Business Travel 11 

References 

Anderson, James E. and Eric van Wincoop (2003). “Gravity with Gravitas: A Solution to the 

Border Puzzle,” American Economic Review, 93: 170-192. 

Aradhyula, Satheesh and Russell Tronstad (2003). “Does Tourism Promote Cross-Border 

Trade?” American Journal of Agricultural Economics, 35: 569-579. 

Arkolakis, Costas (2008). “Market Penetration Costs and the New Consumer Margin in 

International Trade.” Yale Working Paper. 

Bagwell, Kyle (2007). “The Economic Analysis of Advertising.” Handbook of Industrial 

Organization. Amsterdam: North-Holland. 

Bernard, Andrew B., J. Bradford Jensen, Stephen J. Redding, and Peter K. Schott (2007). “Firms 

in International Trade.” Journal of Economic Perspectives 21: 105-130. 

Chaney, Thomas (2008). “Distorted Gravity: The Intensive and Extensive Margins of 

International Trade.” American Economic Review, 98: 1707-1721. 

Cristea, Anca (2011). “Buyer-Seller Relationships in International Trade: Evidence from U.S. 

States' Exports and Business Class Travel.” University of Oregon manuscript. 

Eaton, Jonathan, Samuel Kortum, and Francis Kramarz (2004). “ Dissecting Trade: Firms, 

Industries, and Export Destinations.” NBER Working Paper 10344. 

Gray, H.P. (1970). International Arrivals: International Trade. Lexington, MA: D.C. Heath. 

Helpman, Elhanan, Marc Melitz and Yona Rubinstein (2008). “Estimating Trade Flows: Trading 

Partners and Trading Volumes.” Quarterly Journal of Economics, 123: 441-487. 

Helpman, Elhanan, Marc J. Melitz and Stephen R. Yeaple (2004). “"Export versus FDI with 

Heterogeneous Firms." American Economic Review, 94: 300-316. 

Keintz, Rita M. (1971). “A Study of the Demand for International Travel to and from the United 

States.” American Economist, 15: 551-59. 

Khan, Habibullah, Rex S. Toh and Lyndon Chua (2005). “Tourism and Trade: Cointegration and 

Granger Causality Tests.” Journal of Travel Research, 44: 171-176. 

Krugman, Paul R. (1980). “Scale Economies, Product Differentiation, and the Pattern of Trade.” 

American Economic Review, 5: 950-959. 

Kulendran, Nada, and Kenneth Wilson (2000). “Is There a Relationship Between International 

Trade and International Travel.” Applied Economics, 32: 1001-1009. 

Kulendran, Nada, and Stephen F. Witt (2003). “Forecasting the Demand for International 

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Melitz, Marc J. (2003). “The Impact of Trade on Aggregate Industry Productivity and IntraIndustry Reallocations.” Econometrica 71: 1695-1725. 

Poole, Jennifer P. (2010). “Business Travel as an Input to International Trade.” UC Santa Cruz 

Working Paper. 

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Evidence from China.” Applied Economics Letters, 8: 279-283. 

 
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U.S. International Business Travel 13 

Technical Appendix 

Econometric Specification 

From the theoretical model, we determine the coefficients in the following system of loglinear equations, with lower-case variables indicating the natural logs of the variables: 

ܾ௝௧ ൌ ߠ ௒஻ݕ௝௧ ൅ ߠ஻ி ݂௝௧ ൅ ߠ஻ீ ݃௝௧ ൅ ߠ஻ெ ݉௧ ൅ ߠ஻ௌ ݏ௝௧ ൅ ߠ ௓஻ݖ௝௧ ൅ ߠ ௏஻ݒ௝௧ (1) 

 ݔ௝௧ ൌ ߠ ஻௑ܾ௝௧ ൅ ߠ ௒௑ݕ௝௧ ൅ ߠ௑ி ݂௝௧ ൅ ߠ௑ீ ݃௝௧ ൅ ݊௧ ൅ ߠ௑ெ ݉௧ ൅ ߠ௑ௌ ݏ௝௧ ൅ ߠ ௓௑ݖ௝௧ (2) 

For example, the coefficient ߠ ஻௑is the elasticity of the value of U.S. exports with respect 

to the number of business travelers to country j in year t. The system of log-linear equations in 

(8) and (9) jointly determines the number of business travelers to country ݆ and the value of U.S. 

exports to the country. The number of business travelers is increasing in income, brand 

awareness and the proximity and size of country ݆, and it is decreasing in the cost of the 

international travel. Similarly, the value of U.S. exports is increasing in the volume of business 

travel and country size and is decreasing in the cost of international shipping. 

The key empirical implication of the log-linear system of equations in (1) and (2) is that 

business travel is not an independent determinant of export volume to country ݆, because exports 

and the number of business travelers are both determined by the unobservable export demand 

factors, represented in these equations by the variables ݂௝௧ and ݃௝௧. This joint endogeneity needs 

to be addressed in the econometric analysis.

In our econometric estimation, we use the specification in (3) to estimate the 

parameters in (2). 

(3) ௧௝ݑ ൅ ௧ߤ ൅ ௝ߜ ൅ ௧௝ݏ ଷߛ ൅ ௧௝ݕ ଶߛ ൅ ௧௝ܾ ଵߛ ൅ ଴ߛ ൌ ௧௝ݔ 

The variables ߜ ௝and ߤ௧ represent country and time fixed effects. The error term of the 

econometric model, ݑ௝௧, includes ߠ௑ி ݂௝௧ and ߠ௑ீ ݃௝௧. OLS estimation of this elasticity based on 

equation (10), with unobservable ݂௝௧ and ݃௝௧ in the error term, will generate a biased estimate of 

ߛଵ as long as ߠ஻ி and ߠ஻ீ are not equal to zero. 
Manufacturing and Services Economics Brief No. 10 

14 U.S. International Business Travel – November 2012

To obtain an unbiased estimate of ߛଵ, we use an instrumental variable. The instrumental 

variable should be correlated with the number of international business travelers but should not 

depend on any other factors that affect the demand for exports, including the variables 

represented by ݂௝௧ and ݃௝௧. We propose that the annual count of leisure travelers from the United 

States to country ݆ satisfies these requirements. We expect that the number of leisure travelers is 

affected by the cost of traveling to the country as well as many other factors that we do not 

directly observe, including the quality of historical and cultural attractions that are unrelated to 

commercial opportunities to export to country ݆. We use the variable ݈௝௧ to represent the count 

of leisure travelers. We expect that ݈௝௧ is positively correlated with ݒ௝௧, since both types of 

international travelers reflect the cost of travel from the United States to the country ݆, but is not 

correlated with ݂௝௧ or ݃௝௧. 

In the first stage of the estimation, we regress the number of business travelers on the 

number of leisure travelers, using the specification in (4). 

ܾ௝௧ ൌ ߚ ൅ ଴ߚଵ݈௝௧ ൅ ߚଶ ݕ௝௧ ൅ ߚଷ ݏ௝௧ ൅ ߦ ൅ ௝ߞ௧ ൅ ݁௝௧ (4) 

The variables ߦ ௝and ߞ௧ represent country and year fixed effects in the first-stage 

specification. Then we substitute the predicted values of ܾ௝௧ into (3). This two-stage procedure 

is equivalent to instrumental variable (IV) regression where the number of business travelers is 

instrumented with the number of leisure travelers. 
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