Long-Range Growth: Economic Development in the Global Network of Air Links

This paper studies the impact of international long-distance flights on the global spatial allocation of economic activity. To identify causal effects, it exploits variation due to regulatory and technological constraints that give rise to a discontinuity in connectedness between cities at a distance of 6000 miles. This shows that these air links have a positive effect on local economic activity, as captured by satellite-measured night-lights. To shed light on how air links shape economic outcomes, this paper first presents evidence of positive externalities in the global network of air links: connections induce further connections. It then finds that air links increase business links, showing that the movement of people fosters the movement of capital. In particular, this is driven mostly by capital flowing from high-income to middle-income (but not low-income) countries. Taken together, the results suggest that increasing interconnectedness generates economic activity at the local level by inducing links between businesses, but also gives rise to increased spatial inequality locally, and potentially globally. [Working Paper 22653]