consistent with the data.

# **6.3 Terrorism, Visas and US Imports**

Here, we pursue our investigations by running a series of regressions where we could employ a true variable of bilateral security at the borders but on a much smaller period. We thus assemble data on the number of non-immigrant visa issuances by partner country from 1997 to 2002 (last year of our US imports dataset). These data are provided online by the US Department of State<sup>20</sup> . We have chosen to work on the number of visas issued for Business (B1) and Business and Leisure (B1-2), assuming that those who come for both Business and Leisure decide to do so primarily for business activities<sup>21</sup> .

Now, the rate of visas issued (i.e. ratio of number of visas to total visas demand) would have been even a better proxy for security, as it informs on the number of visa denied as well by the United States. However, and probably for political reasons, we could not find this information on the Department of State website.

We want to investigate whether the impact of terrorism incidents on trade in differentiated (network-related) products is truly transiting through the number of issued visas for Business. Hence, on one side we study the relationship between terrorism incidents and the number of visas issued (this is to be called our empirical model 1, hereafter) and on the other side, we study the link between the visas and trade in differentiated products (model 2, hereafter). Model 1 will also serve as a first stage regression when we run an instrumental variable regression of US imports later on.

Table 7 presents the results. The first two columns present two alternative econometric methods (Product/year fixed effects and Within) to explain the business visas issued, using mainly gravity type determinants. We add further both types of terrorism incidents based on origin and third countries. As for US imports, third countries incidents variable appear to affect significantly business visa issuance. However, no evidence is provided for incidents perpetrated on the origin country soil.

In return, Columns 3 to 5 investigate the impact of business visas on US imports. We expect the effect to be positive and statistically significant for differentiated products, and no effect for organized exchange products. Column 5 confirms the first intuition: namely a 10% increase in visa issuing increases by almost 5% trade with US in differentiated products. However, the effect of business visas appears to be negatively affecting trade in organized exchange but this effect is not robust across specifications<sup>22</sup> .

Finally, we have also run an instrumental variable regression in model 2 where the number of business visas is instrumented by all variables described in model 1. The chi-squared Anderson statistic presented rejects the exogeneity hypothesis of the number of visas and the instruments pass the over-identification test. The effect appears now to be higher (more positive) whichever the class of

> 20http://travel.state.gov/visa/frvi/statistics/statistics 1476.html

> 21Only citizens of countries that are not part of the Visa Waiver Program are included in our analysis. Hence, most of the OECD countries, part of this program, are not included in the panel because their nationals do not need visas in general to enter the US for Business or Leisure for a short stay (under 3 months).

> 22Results upon request

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