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

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  • Nicholas Sheard

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Abstract

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.

Suggested Citation

  • Nicholas Sheard, 2012. "The effect of air transport on the production of goods and services," ERSA conference papers ersa12p429, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa12p429
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    References listed on IDEAS

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    Cited by:

    1. Sheard, Nicholas, 2017. "Airport consolidation and the provision of air services," Journal of Air Transport Management, Elsevier, vol. 60(C), pages 31-44.
    2. Bruce A. Blonigen & Anca D. Cristea, 2012. "Airports and Urban Growth: Evidence from a Quasi-Natural Policy Experiment," NBER Working Papers 18278, National Bureau of Economic Research, Inc.
    3. Florian Mayneris, 2017. "Effets des infrastructures de transport sur le niveau et la localisation des activités économiques," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2017023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    4. Redding, Stephen J. & Turner, Matthew A., 2015. "Transportation Costs and the Spatial Organization of Economic Activity," Handbook of Regional and Urban Economics, Elsevier.
    5. repec:eee:touman:v:65:y:2018:i:c:p:237-244 is not listed on IDEAS
    6. Alderighi, Marco & Gaggero, Alberto A., 2017. "Fly and trade: Evidence from the Italian manufacturing industry," Economics of Transportation, Elsevier, vol. 9(C), pages 51-60.
    7. Joshua Hall & Amanda Ross & Christopher Yencha, 2015. "The political economy of the Essential Air Service program," Public Choice, Springer, vol. 165(1), pages 147-164, October.
    8. Stephen Gibbons & Wenjie Wu, 2017. "Airports, Market Access and Local Economic Performance: Evidence from China," SERC Discussion Papers 0211, Spatial Economics Research Centre, LSE.
    9. Richard Florida & Charlotta Mellander & Thomas Holgersson, 2015. "Up in the air: the role of airports for regional economic development," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(1), pages 197-214, January.
    10. Nicholas Sheard, 2015. "Airport Improvements and Urban Growth," ERSA conference papers ersa15p28, European Regional Science Association.
    11. Jerónimo Carballo & Alejandro Graziano & Georg Schaur & Christian Volpe Martincus, 2016. "Endogenous Border Times," IDB Publications (Working Papers) 94638, Inter-American Development Bank.
    12. repec:eee:retrec:v:63:y:2017:i:c:p:50-58 is not listed on IDEAS
    13. Jerónimo Carballo & Alejandro Graziano & Georg Schaur & Christian Volpe Martincus, 2016. "Endogenous Border Times," IDB Publications (Working Papers) 7685, Inter-American Development Bank.
    14. repec:ssi:jouesi:v:3:y:2016:i:3:p:228-243 is not listed on IDEAS
    15. Brueckner, Jan K. & Picard, Pierre M., 2015. "Where and when to invest in infrastructure," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 123-134.
    16. repec:eee:trapol:v:63:y:2018:i:c:p:108-121 is not listed on IDEAS
    17. Nicholas Sheard, 2015. "Airport Improvements and Urban Growth," AMSE Working Papers 1509, Aix-Marseille School of Economics, Marseille, France.
    18. repec:eee:transa:v:106:y:2017:i:c:p:288-299 is not listed on IDEAS
    19. repec:rsr:supplm:v:65:y:2017:i:8:p:102-111 is not listed on IDEAS
    20. Blonigen, Bruce A. & Cristea, Anca D., 2015. "Air service and urban growth: Evidence from a quasi-natural policy experiment," Journal of Urban Economics, Elsevier, vol. 86(C), pages 128-146.
    21. Murakami, Jin & Matsui, Yurika & Kato, Hironori, 2016. "Airport rail links and economic productivity: Evidence from 82 cities with the world’s 100 busiest airports," Transport Policy, Elsevier, vol. 52(C), pages 89-99.
    22. Gibbons, Stephen & Wu, Wenjie, 2017. "Airports, market access and local economic performance: Evidence from China," LSE Research Online Documents on Economics 83630, London School of Economics and Political Science, LSE Library.
    23. Hazledine, Tim, 2014. "Searching for the sweet spot: The determinants of direct services from Canadian airports," Journal of Air Transport Management, Elsevier, vol. 41(C), pages 50-55.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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