Business travel, institutions, and economic complexity

Abstract While international knowledge transfer drives structural transformation, the diffusion of tacit knowledge—the complex skills and procedures essential for sophisticated production—remains constrained by the need for face-to-face interaction. This paper identifies outbound business travel as a distinct channel for overcoming this friction. Exploiting a panel of 113 countries (1995–2020) and a System GMM framework to address endogeneity, I document a robust positive association between business travel and economic complexity. I show that this relationship is conditional on domestic political institutions: the returns to travel are amplified in inclusive, open political environments but vanish in highly centralized systems. Furthermore, I find evidence of diminishing marginal returns, suggesting that the benefits of travel moderate as connectivity channels saturate. I conclude that inclusive institutions function as a critical “absorptive filter” mechanism, enabling the tacit knowledge acquired abroad to translate effectively into national productive capabilities.