Official Visits and Trade Flows with the United States

ABSTRACT: This paper examines the effect of the visits of U.S. Presidents and Secretaries of State to a country on bilateral trade flows between that country and the United States. The official visits dummy variables are derived from the historical archives of the U.S. Department of State, while bilateral trade with the United States as a percentage of total trade with the world is compiled from UNCOMTRADE. The fixed effects estimation shows that the visits of U.S. officials to the country do not have a statistically significant effect on the bilateral trade variable. However, the issue of endogeneity cannot be ignored. As much as trade flows may increase after the visits of American officials to the country, these officials may be tempted to visit their major trading partners as well. This is either to ensure the smooth flow of trade, to increase the volume and value of trade, or to contain any trade disputes. This highlights an issue of reverse causality. To address the issue of potential endogeneity, we use the Endogenous Treatment model. The estimation results provide evidence that the official visits of U.S. Presidents and U.S. Secretaries of State have a statistically significant positive effect on bilateral trade with the United States. This is robust even after the inclusion of other control variables identified by the literature as confounding factors for bilateral trade flows. When we examine the effect of different types of visits, the results show that bilateral meetings during the official visits of U.S. Presidents and U.S. Secretaries of State have a statistically significant positive effect. These results imply that the visits of U.S. officials are taken as an opportunity to conclude trade agreements, to contain trade disputes, and to discuss the elimination of trade barriers between the two countries. This enhances the level of bilateral trade between the country and the United States. The paper has multiple policy implications tat are discussed in detail.