The Return to Overseas Visits by Political Leaders: Evidence from Japanese yen loan procurement auctions

Author Name NISHITATENO Shuhei (Research Associate, RIETI)
Creation Date/NO. May 2024 24-E-057
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Securing infrastructure development contracts amidst the current growing demand for infrastructure overseas has become a pivotal policy issue in advanced countries. This study examines overseas visits by political leaders in infrastructure investment competitions, analyzing the case of Japan. First, by leveraging Japanese yen loan procurement auction data, I estimate the effect of overseas visits by Japanese political leaders on the probability of a contract being awarded to Japanese firms. Subsequently, to analyze the ripple effect on Japanese merchandise exports, I estimate short- and long-run Japanese export-contract value elasticities by adopting a dynamic panel specification with a system generalized method of moments estimator. Finally, I calculate the incurred travel costs. The results suggest that from 2001–2020, the net economic benefits owing to overseas visits by Japanese political leaders amounted to US$ 53 billion in year-2023 dollars, with US$ 2.6 billion annually. The estimated return on overseas visits by political leaders should be regarded as a lower bound because the scope of the current analysis has been limited to aid-related infrastructure in developing countries.