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The effect of air transport on the production of goods and services

  • Nicholas Sheard

    ()

This paper estimates the effect of air transport on local production in the manufacturing and service sectors. The analysis is conducted using data from the United States. These effects are important for the design of policies that aim to develop an airport or to otherwise attract airlines to operate to and from the airport. This type of policy is commonly employed by national and local governments, indeed most large commercial airports in the United States and Canada are publicly owned. Though it is common for local authorities to construct new runways, terminals, or other facilities, the effects of such policies are not currently well understood. The estimation of the effect of airport size on local production is subject to an obvious endogeneity problem, as airlines are likely to expand operations in response to increased demand. This problem is addressed by using the 1944 National Airport Plan of the Civil Aeronautics Administration to instrument for the distribution of airports. The National Airport Plan passes the statistical tests for relevance and exogeneity, which is not surprising as the federal funding connected to it was important for the rapid development of the air network after the Second World War and the criteria used to select sites was unrelated even to the contemporary distribution of sectors. Better air connections are found to have a positive effect on the size of the local service sector, with an elasticity of approximately 0.2. A larger airport – hosting more frequent flights to a wider range of destinations – is associated with a greater share of the population in the metropolitan area being employed in the service sector. This is interpreted as indicating that services are being produced in the metropolitan areas with larger airports for export elsewhere. There appears to be no effect on non-tradable services, such as beauty salons and auto repair, precisely as we would expect. The effect on manufacturing is negative, though this appears to reflect substitution to the expanded service sector rather than a direct effect, as the analysis of manufacturing shipments between pairs of cities does not appear to be related to air traffic.

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File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa12/e120821aFinal00431.pdf
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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa12p429.

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Date of creation: Oct 2012
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Handle: RePEc:wiw:wiwrsa:ersa12p429
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  1. Jan K. Brueckner, 2003. "Airline Traffic and Urban Economic Development," Urban Studies, Urban Studies Journal Limited, vol. 40(8), pages 1455-1469, July.
  2. Blonigen, Bruce A. & Cristea, Anca D., 2012. "Airports and Urban Growth: Evidence from a Quasi-Natural Policy Experiment," MPRA Paper 40304, University Library of Munich, Germany.
  3. Gilles Duranton & Matthew A. Turner, 2007. "Urban growth and transportation," Working Papers tecipa-305, University of Toronto, Department of Economics.
  4. Guy Michaels, 2006. "The effect of trade on the demand for skill - evidence from the interstate highway system," LSE Research Online Documents on Economics 19767, London School of Economics and Political Science, LSE Library.
  5. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
  6. Nathaniel Baum-Snow, 2007. "Did Highways Cause Suburbanization?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 775-805.
  7. Dave Donaldson, 2010. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," NBER Working Papers 16487, National Bureau of Economic Research, Inc.
  8. Stephen Redding & Anthony J. Venables, 2001. "Economic Geography and International Inequality," CEP Discussion Papers dp0495, Centre for Economic Performance, LSE.
  9. Cristea, Anca D., 2011. "Buyer-seller relationships in international trade: Evidence from U.S. States' exports and business-class travel," Journal of International Economics, Elsevier, vol. 84(2), pages 207-220, July.
  10. Richard K. Green, 2006. "Airports and Economic Development," Working Papers 0002, School of Business, The George Washington University.
  11. Ximena Clark & David Dollar & Alejandro Micco, 2004. "Port Efficiency, Maritime Transport Costs and Bilateral Trade," NBER Working Papers 10353, National Bureau of Economic Research, Inc.
  12. Gilles Duranton & Peter Morrow & Matthew Turner, 2013. "Roads and Trade: Evidence from the U.S," Working Papers tecipa-479, University of Toronto, Department of Economics.
  13. Gilles Duranton & Matthew A. Turner, 2009. "The Fundamental Law of Road Congestion: Evidence from US Cities," SERC Discussion Papers 0030, Spatial Economics Research Centre, LSE.
  14. Redding, Stephen J. & Sturm, Daniel M & Wolf, Nikolaus, 2007. "History and Industry Location: Evidence from German Airports," CEPR Discussion Papers 6345, C.E.P.R. Discussion Papers.
  15. James E. Rauch & Vitor Trindade, 2002. "Ethnic Chinese Networks In International Trade," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 116-130, February.
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