۱- Introduction

۲- The Schengen Area as a natural experiment

۳- Empirical strategy

۴- Main results

۵- Robustness tests

۶- Which products?

۷- General equilibrium and welfare analysis

۸- Conclusions

References

Abstract

Travel visas impose additional costs to firms engaging in international trade. This paper exploits a natural experiment provided by the Schengen Agreement to document a large causal negative impact of visas on goods trade. The introduction of a visa, requested by a single Schengen Area member, considerably reduced bilateral trade flows of Ecuador and Bolivia with the members of the border-control free zone other than Spain. I show that the negative impact of visas is much larger for differentiated than for homogeneous products. By applying a general equilibrium framework, the paper shows that removing visas would increase welfare by 5% or more for some Sub-Saharan African countries and by 1,1% on average for developing countries. For policy makers this paper highlights the importance of including visa facilitation schemes into the provisions of trade agreements and economic partnerships.

Introduction

A wide range of non-tariff barriers to trade has been thoroughly studied. Visas however, understood as a non-tariff trade barrier, have to the best of our knowledge not received much attention in the economic literature. This occurs despite the claims of numerous developing countries regarding the difficulties imposed by visas on their exporters. In a recent high-level meeting, Mthuli Ncube, Chief Economist and VicePresident of the African Development Bank, declared for instance that “Africa is one of the regions in the world with the highest visa requirements. Visa restrictions imply missed economic opportunities for intraregional trade” (Michelle DeFreese, 2017). For example, Ethiopian entrepreneurs require visas to travel to most countries in the world. Fig. 1 shows the world as seen by Ethiopian nationals when planning to travel abroad. The countries in red require Ethiopian citizens to apply for a visa prior to arrival. While there is a small number of visa-free countries for Ethiopians, most of these countries are not connected to Addis Ababa through direct flights. All the countries in which connecting flights take place require transit visas for Ethiopians. Ethiopia is not even the country suffering the most from visa restrictions. There is a considerable number of other countries whose nationals can travel to even fewer countries visa-free. There are two main reasons why visa restrictions might affect international trade in goods. First, there is recent empirical evidence of the Introduction A wide range of non-tariff barriers to trade has been thoroughly studied. Visas however, understood as a non-tariff trade barrier, have to the best of our knowledge not received much attention in the economic literature. This occurs despite the claims of numerous developing countries regarding the difficulties imposed by visas on their exporters. In a recent high-level meeting, Mthuli Ncube, Chief Economist and VicePresident of the African Development Bank, declared for instance that “Africa is one of the regions in the world with the highest visa requirements. Visa restrictions imply missed economic opportunities for intraregional trade” (Michelle DeFreese, 2017). For example, Ethiopian entrepreneurs require visas to travel to most countries in the world. Fig. 1 shows the world as seen by Ethiopian nationals when planning to travel abroad. The countries in red require Ethiopian citizens to apply for a visa prior to arrival. While there is a small number of visa-free countries for Ethiopians, most of these countries are not connected to Addis Ababa through direct flights. All the countries in which connecting flights take place require transit visas for Ethiopians. Ethiopia is not even the country suffering the most from visa restrictions. There is a considerable number of other countries whose nationals can travel to even fewer countries visa-free. There are two main reasons why visa restrictions might affect international trade in goods.