Air transport and economic growth: a review of the impact mechanism and causal relationships

ABSTRACT

The impacts of air transport on the economy arise both directly, via activity in the aviation sector; and indirectly, via increased spending and wider economic benefits associated with improved access to resources, markets, technology and economic mass. Economic activity, in turn, supports and generates demand for air transport. Despite its potential importance, the reciprocal nature of the causal relationship between air transport and economic performance has remained somewhat understudied. This paper provides a synthesis review of the channels the aviation sector interacts with regional economy. The review focuses on quantitative studies that contribute to the state-of-the-art understandings of the causality. We find that the reciprocal causal relationship is more likely to prevail in less developed economies. For more developed economies, only one direction of the causality is recognised, which runs from air transport to economic growth. Especially substantial is the effect of airline enplanement on service-related employment. The reverse direction of the relationship is, however, not as significant as believed in a causal sense within the developed world. Therefore, cautions need to be taken when applying income elasticities (such as the elasticity of air passenger demand with respect to GDP) in air travel demand forecasting, which implicitly assumes that economic growth causally leads to air traffic increment. Based on the fundamental links between air transport and economic growth, some typical imperfections and inefficiencies in aviation markets are discussed and promising avenues for future research are proposed.

KEYWORDS:

• Air transport
• economic growth
• reciprocal causality
• market imperfections
• literature review

Disclosure statement

No potential conflict of interest was reported by the author(s).

ORCID

Fangni Zhang http://orcid.org/0000-0003-3584-4679

Notes

1 A link indicates a recognised influence where the impact elasticity can be large or small. Figure 1 omits the complex dynamics within the economic system, which is out of the scope of this study.

2 In general, demand and supply interact with one another through decisions of consumers and producers. There is no arrow pointing from “demand” to “supply” in Figure 1 because the producers (airports and airlines) are involved. Presumably consumers cannot directly change the supply and thus we consider that the impact of demand on supply takes effect only through producers' decisions.

3 The two channels are in fact interrelated, as usually where there is higher demand provides larger capacity. Relevant studies on this issue are tentatively classified into the two channels according to the emphasis of the research.

4 Although the income distribution among population is an important factor for decisions related to airport capacity, it is often overlooked in income elasticity estimations.

5 There is a third stream that finds a reversed uni-directional causal relationship from economic growth to air transport (Fernandes & Pacheco, 2010). Given that Fernandes and Pacheco (2010) use the same dataset and same method as Marazzo et al. (2010), results published in a higher-ranked journal with significantly higher impact factor are selected, i.e. Marazzo et al. (2010). Thus, the last stream is omitted in the following discussion.

Additional information

Funding

This work was supported by the Engineering and Physical Sciences Research Council under grant Airport Capacity Consequences Leveraging Aviation Integrated Modelling.