Information Outputs and International Trade: Evidence from U.S. State Level Data on Business Air Travel

This paper provides theory and evidence examining the importance of information transfers in international trade. Information is modeled as an endogenous fixed cost of trade that enters as input into market-specific product appeal. Differences in bilateral communication costs, information intensities across traded goods and market potentials across foreign countries determine the optimal level of information transmitted within a trade relationship. Using rich U.S. state-level data on international business class air travel, matched with bilateral data on manufacturing exports, I confirm the model’s predictions that the demand for information transferred via business class travel is directly related to export volumes and composition in terms of differentiated products. The value of the intra-national geographic dimension of the data comes in the econometric identification. By exploiting only state by time variation, the results circumvent any spurious correlation induced by cross-country differences driving both travel and trade flows. I also estimate the dependence of information demand on industry level exports in order to identify the information intensity of trade at sector level, and find that exports of R&D intensive manufactures and goods facing contractual limitations are most dependent on face-to-face meetings.