Quantifying the impacts of air transportation on economic productivity: a quasi-experimental causal analysis

Air transport capacity expansions are often justified on the grounds that they will improve economic performance and induce growth. Such causal impacts are hard to identify empirically due to the fundamentally endogenous nature of the relationship between air transport and the economy. This paper contributes to the empirical literature on aviation-economy effects by conducting a case study of the impacts of air transportation activity on productivity in Chinese provinces. For exogenous variation we exploit a policy scenario created by the 2003 deregulation of the Chinese aviation sector, which was applied in all provinces of China except Beijing and Tibet. We find that this policy intervention resulted in substantial growth in air transport passengers and cargo. We estimate the causal effect of air transport on productivity by comparing GDP per employee in Tibet relative to a synthetic control region affected by the deregulation policy. We find a significant positive productivity effect from aviation expansion following the 2003 deregulation. Use of a differences-in-differences specification confirms this result.