Economics Working Papers

Publication Date





We analyze bilateral exports of higher education services between OECD countries and Asia, using a gravity equation approach, panel data from 1998 to 2016, and PPML regression. The approach treats higher education consumption by Asian countries as a consumable durable good. Asian Students come to OECD countries to obtain degrees from their universities. Structurally, the flow of students from Asian country j to OECD country i depends on bilateral transaction costs between i and j, the income per capita in j, school-age demographics in j, the higher-education capacity of i, the perceived quality of universities in i, and the usual multilateral trade resistance terms. We find that bilateral flows of students are strongly influenced by bilateral distance, importers’ income, demographics, common language, communality in religions, the visa regime prevailing in bilateral country pairs, and the size of the higher education sector in OECD countries. The evolution over time of the size of the higher education sector, visa regimes, strong income growth and changes in demographics in nearby export markets explain the emergence of Australia, Canada, Korea, and New Zealand and the loss of market share by the US, which still strongly dominates international trade in higher education services.

JEL Classification

F14, F22

Version History

Original Release Date: August 8, 2019


Department of Economics, Iowa State University

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40 pages