Environmental and social welfare effects of aviation liberalization: Evidence from Central Asia and China market

We investigate the effects of international aviation liberalization between China and Central Asia on environment and social welfare. Based on monthly international air traffic data between Central Asia and China, we estimate a random-coefficients discrete choice model and perform a counterfactual analysis to quantify the effects of improved air connectivity, mainly considering that the ratio of direct and connecting aviation services between Central Asia and Beijing is the same as those between Central Asia and Russia, between Central Asia and other former Soviet Union countries and between Central Asia and other Asian countries. The main findings are as follows. First, improving air connectivity intensifies competition in the market, resulting in a decrease in the passenger-weighted average airfares between Central Asia and Beijing by 0.86–5.15 US dollars (USD) in 2012 and an increase in the total number of passengers by 2930–20,790. Second, improving air connectivity increases total carbon emissions (CO2) between Central Asia and Beijing by 0.78–6.11 million kilograms (kg) in 2012 but also drives down per capita CO2 emissions in this market by 0.78–2.38 kg. Third, while increasing total environmental externality costs, improving air connectivity significantly enhances consumer welfare and airline profits, resulting in a net social benefit of 14.02–44.12 million USD between Central Asia and Beijing in 2012. Finally, several policy implications are discussed.