Airports and Economic Development

By Green, Richard K. | Real Estate Economics, Spring 2007 | Go to article overview

Airports and Economic Development


Green, Richard K., Real Estate Economics


This article tests whether the activity at a metropolitan area's airport helps predict population and employment growth. In regression equations explaining employment and population growth, the article uses various measures of airport activity, including boardings, originations, hub status and cargo volume. Because airports may be a function of, as well as a cause of, growth, the article instruments for airports by using geographical and lagged variables. It finds that, under a variety of specifications, passenger activity is a powerful predictor of growth; cargo activity is not.

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The popular press and local economic development boosters often cite hub airports as mechanisms for helping metropolitan areas grow. We will present a number of examples of such boosterism below. Moreover, there are a variety of literatures that touch on the importance of infrastructure in general, and airports in particular, to economic development and also on the financing of such infrastructure.

Yet, so far as I can tell, there have been a limited number of studies that have looked at the impact of airports on regional growth (Brueckner 2003 being the key exception). In light of the many claims that have been made about the importance of airports to economic activity, this may seem surprising. Indeed, we may draw a contrast with the sports stadium literature, which contains a large number of articles (see, e.g., Zimbalist 2001). That literature, which generally produces evidence that stadiums are not important to economic development, involves a type of infrastructure that is much less costly than airports and that has much less direct influence on both business and consumption than airports. In fact, one of the things that makes airports inherently interesting is that roughly two million people take a commercial flight every day, (1) so many people can relate to the issues surrounding them.

Airports are also controversial. It seems that, for every business leader who wants to see his or her local airport expand, there is a resident in the flight path of an airport who wants to see his or her local airport's traffic capped, if not reduced. Clearly airports create some negative externalities (although Tomkins et al. 1998 suggest that they are not as large as most people think), so it would be interesting to know whether the positive externalities they create are sufficiently large to offset their noise, pollution and aviacide.

So the question remains why airports have not been the subjects of much careful study with respect to their impact on economic development. The answer lies with a difficult econometric issue: simultaneity. While there is a strong correlation between air traffic and economic growth, the direction of causation is not entirely clear. It is certainly reasonable to posit that airports lead to economic development, but it is also reasonable to posit than economic development leads to airport traffic. This article attempts to deal with this issue by taking advantage of two things: a panel and two instruments.

The article proceeds as follows. It begins with a review of some popular press pieces on the importance of airports. It follows with a discussion of various economic literatures involving airports. Next it turns to past econometric models of infrastructure and economic development and includes a discussion of methods for avoiding the sorts of simultaneity problem discussed above. It then discusses model specification and data and finally presents some regression results. The article finishes with some speculations arising from the regression results.

The Popular View of Airports

Many recent newspaper stories make the case that good airport service enhances economic development--and that poor airport service discourages it. Recent stories from Cincinnati, Cleveland, New York, Dallas and Los Angeles provide useful examples. Consider the following excerpt from a story in the Cleveland Plain Dealer (Achkar 1999):

  The Cincinnati/Northern Kentucky International Airport--located in
  Boone County in northern Kentucky, 13 miles from downtown Cincinnati--
  has blossomed into one of the busiest and fastest-growing in the
  country, now featuring daily non-stop flights to five European cities. … 

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