Cross-Border Flows of People, Technology Diffusion and Aggregate Productivity
with Thomas Barnebeck Andersen
Abstract:
The present paper examines an as yet neglected determinant of aggregate productivity: temporary cross-border flows of people. We hypothesize that interaction between people from different nations facilitates technology diffusion and stimulates aggregate productivity. In order to assess the causal impact of people flows on productivity, we construct an instrument for people flows. By analogy to the trade/growth literature, this instrument is derived from a fitted gravity equation involving geographic determinants of bilateral travel flows. Our cross-section analysis show that increasing the intensity of international travel by 1% increases aggregate total factor productivity and GDP per worker by about 0.2%. A very similar estimate is obtained when we employ panel data and dynamic GMM methods for the purpose of identification. We also discuss the relative impact of cross-border flows of people and goods on productivity: it appears that people flows are, if anything, a stronger determinant of productivity than trade.
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(A Previous version with a subset of the results discussed in the current version was distributed as Discussion paper No. 06-04, Department of Economics, University of Copenhagen)
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