How do airports contribute to economic growth?

06.02.2014
By Florian Allroggen and Robert Malina

Virtually all airport greenfield or capacity-enhancing projects are at least partially motivated by their alleged positive impact on economic development. From a theoretical perspective, two different impacts on economic growth can be distinguished. First, airport investments and airport operations potentially result in Keynesian demand-side effects on employment and value-added. Second, supply-side effects may arise if air services create accessibility so that firms close to the airport are able to extend markets, to innovate and/or to improve productivity through Economies of Scale and Agglomeration.1

Growth impacts from the demand-side, however, are one-off effects and cease to exist in the absence of continuous increases in demand and spending through the airport, its airlines and the related supply-chain. Moreover, while the demand-side effects might differ in size, all public or private expenditures generate demand-side effects - irrespective of their nature.2 On the contrary, airports’ supply-side impacts are air transport-specific. They result from shifting the production frontier outwards through air transport-related accessibility, which can be thought of as a measure of interaction possibilities3 created through air transport. 

In the literature, there is empirical evidence that airport investments and/or increases in air transport activities create supply-side effects through enhancing productivity and increasing employment.4 However, one needs to keep in mind that airports do not generate supply-side effects on their own, but rather facilitate them: Airports offer the infrastructure on which airlines can create connectivity through air services. Overall traffic throughput is often believed to drive the supply-side economic significance of airports and air services. In light of the ‘accessibility’ concept, this hypothesis does not necessarily hold true because air services only create economic growth if the services are industry-relevant. Leisure routes – though potentially creating private benefits and demand-side impacts (including tourism-related effects) – are unlikely to cause supply-side growth effects, whereas air services to economic centers are potentially significant in supporting growth.5 Furthermore, we note that accessibility through hub connections can be an important driver of supply-side impacts, since a single route opens up a multitude of indirect connections. This is particularly relevant for smaller airports where airlines cannot economically offer direct connections due to weak passenger demand or infrastructure restrictions.

An interesting – and to date open – question in this context is the spatial spread of the supply-side effects. It is well known from passenger surveys6 that airport ground access is an important driver of the spatial spread of actual passenger demand. Similarly, one could argue that ground access drives the spatial spread of airports’ supply-side effects. This is of particular importance since it implies that a region does not necessarily need to invest in its own airport to increase air transport-related accessibility. In fact, a region could also opt for improving ground access to an existing airport somewhere else, thereby ‘piggybacking’ on the accessibility created through the airport’s route network. From a societal perspective, such a strategy might often be superior to adding airport capacity, given the lumpy character of airport investments and the resulting significant Economies of Density at under-utilized airports. Furthermore, this strategy is often consistent with the objectives of (privately owned) airlines, which cannot choose aircraft capacity from a continuous scale and therefore, must generate demand from larger areas.

To sum up, the presence of an airport does not ‘mechanically’ create long-term economic growth within regions affected by the airport. Growth follows from enhanced accessibility through air transport. If – and only if – opening up a new airport or increasing existing airport capacities facilitates additional accessibility, this investment can have a positive long-run impact on economic growth. Given severe constraints in public budgets, policy-makers should therefore prioritize increasing airport capacity in order to remove existing infrastructure bottlenecks, over adding capacity to regions which already have ample airport capacity or which can be served in a satisfactory way through other airports.

References
Allroggen, F., Malina, R., 2014. Do the regional growth effects of air transport differ among airports? J. Air Transp. Manag. 37, 1-4. 
Button, K., Yuan, J., 2013. Airfreight transport and economic development: An examination of causality. Urban Stud. 50, 329-340.
Lakshmanan, T.R., 2011. The broader economic consequences of transport infrastructure investments. J. Transp. Geogr. 19, 1-12.
Lieshout, R., 2012. Measuring the size of an airport’s catchment area. J. Transp. Geogr. 25, 27-34.
Páez, A., Scott, D.M., Morency, C., 2012. Measuring accessibility: Positive and normative implementations of various accessibility indicators. J. Transp. Geogr. 25, 141-153.
Percoco, M., 2010. Airport activity and local development: Evidence from Italy. Urban Stud. 47, 2427-2443.
Sellner, R., Nagl, P., 2010. Air accessibility and growth: The economic effects of a capacity expansion at Vienna International Airport. J. Air Transp. Manag. 16, 325-329.

Notes
1. Lakshmanan (2011).
  2. Furthermore, it is important to note that the net economy-wide impacts from airport-related demand-side effects depend on the state of the economy (e.g. whether there is full employment or not). 
  3. For a more detailed discussion see Páez et al. (2012).
  4. More recent analyses include Button and Yuan (2013), Sellner and Nagl (2010) as well as Percoco (2010).
5. AllroggenMalina (2014).
6. E.g. Lieshout (2012).




Florian Allroggen was a Research Associate at the Institute of Transport Economics at Münster University and is now joining the Massachusetts Institute of Technology (MIT) as a Postdoctoral Associate at the Department of Aeronautics and Astronautics. 

Robert Malina is a Research Scientist at MIT’s Department of Aeronautics and Astronautics and Associate Director of the Laboratory for Aviation and the Environment at MIT.


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