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Should Business Travel Be Obsolete?

COLOMBO – Think about it: You can call, email, and even watch your counterparty on FaceTime, Skype, or GoToMeeting. So why do companies fork out more than $1.2 trillion a year – a full 1.5% of the world’s GDP – for international business travel?

The expense is not only huge; it is also growing – at 6.5% per year, almost twice the rate of global economic growth and almost as fast as information and telecommunication services. Computing power has moved from our laptops and cellphones to the cloud, and we are all better off for it. So why do we need to move brains instead of letting those brains stay put and just sending them bytes? Why waste precious work time in the air, at security checks, and waiting for our luggage?

Before anyone starts slashing travel budgets, let’s try to understand why we need to move people rather than information. Thanks to a research collaboration on inclusive growth with MasterCard and an anonymized donation of data to the Center for International Development at Harvard University, we are starting to shed some light on this mystery. In ongoing work with Dany Bahar, Michele Coscia, and Frank Neffke, we have been able to establish some interesting stylized facts.

More populous countries have more business travel in both directions, but the volume is less than proportional to their population: a country with 100% more population than another has only about 70% more business travel. This suggests that there are economies of scale in running businesses that favor large countries.