Article

Urban Studies
2015, Vol. 52(9) 1577–1593
Ó Urban Studies Journal Limited 2015
Are airports engines of economic Reprints and permissions:
sagepub.co.uk/journalsPermissions.nav
development? A dynamic panel data DOI: 10.1177/0042098015576869
usj.sagepub.com
approach

Volodymyr Bilotkach
Newcastle University, UK

Abstract
This paper applies the dynamic panel data generalized method of moments estimator to the data
on commercial passenger air traffic at all primary airports in the United States to evaluate the
impact of traffic volume and number of destinations served with non-stop flights on the key
indicators of regional economic development. We find that number of destinations served with
non-stop flights has a much clearer and more robust impact on level of employment, number of
business establishments, and average wage in the region. Passenger traffic volume affects employ-
ment and average wage, but not number of establishments. At the sample median, connecting a
metropolitan statistical area with an extra destination, keeping everything else constant, creates
98 jobs and facilitates the opening of four new business establishments that employ people. The
corresponding numbers for the sample mean are 223 jobs and 15 businesses. The impact of air
travel on regional economic development is influenced by competition on the respective airline
markets.

Keywords
airports, air traffic, development, dynamic panel data GMM

Received August 2013; accepted February 2015

Introduction and ultimately lead to business and job cre-

This paper examines the issue of the impact
of air traffic on economic development,
using data from the United States. While
intuitively we can suspect that a well-
developed and well-connected airport should
facilitate attractiveness of a respective met-
ropolitan area for business, quantifying this
relationship is not a straightforward task.
High-quality air services will facilitate face-
to-face contacts with business collaborators,
foster intercity agglomeration economies,
ation. This new business however will create
more demand for air services. Such feedback
necessitates a careful approach to data anal-
ysis. One of the contributions of this paper
lies in this area: we use a data analysis tech-
nique, which has not been applied to
Corresponding author:
Volodymyr Bilotkach, Newcastle University, 5 Barrack
Road, Newcastle upon Tyne NE1 4SE, UK.
Email: volodymyr.bilotkach@newcastle.ac.uk
1578
studying the air travel–economic develop-
ment link before.
Additionally, our study looks into several
questions with clear practical relevance for
local governments. When thinking about
developing air service from a local airport,
local authorities may have to prioritise either
strengthening existing links (i.e. increasing
frequency of service to existing destinations)
or attracting service to new destinations.
Our study demonstrates that, other things
equal, adding a new destination creates more
jobs in the area as opposed to increasing fre-
quency to existing destinations. Another
issue of relevance to the local authorities is
whether to promote services of airlines
already serving an airport, or to incentivise
entry of new carriers. Our study examines
this dimension as well, suggesting that allow-
ing the dominant carrier to develop its pres-
ence appears to be good for business. This
result appears consistent with the expected
impact of airlines’ customer loyalty pro-
grammes, keeping in mind that: (a) business
travellers are more likely to be active users
of those programmes; and (b) passengers liv-
ing in metropolitan areas with concentrated
airports are more likely to benefit from cus-
tomer loyalty programmes (Borenstein,
1989, 1991). We thus demonstrate that the
impact of commercial passenger air travel
on regional economic development indica-
tors is influenced by competition on the air-
line markets. This finding is of notable
interest, as previous studies (see Bilotkach
and Lakew, 2014, for a recent review) have
focused exclusively on the impact of airline
competition on prices and other measures of
consumer welfare within the airline markets.
Ours is among the first works to evaluate
how competition between the airlines may
affect other sectors of the economy.
Our dataset is a 17-year panel covering
all US metropolitan areas with airports
offering commercial passenger air services.
We consider three measures of economic
Urban Studies 52(9)
development (total employment, number of
business establishments, and average weekly
wage) at the metropolitan statistical area
(MSA) level. We find that a 10% increase in
the number of flights is associated with a
0.1% increase in average wage, with the
impact of this variable on employment and
number of business establishments not being
statistically significant. Air traffic volume
measured by the number of passengers has a
positive and significant effect on employ-
ment and wage, but not on the number of
business establishments. Number of destina-
tions served by non-stop flights is found to
have a robust positive impact on each of the
three measures of economic development. A
10% increase in this variable yields a 0.13%
increase in employment; a 0.1% increase in
the number of business establishments; and
about 0.2% increase in average weekly
wage. At the sample median, connecting an
MSA with an extra destination, keeping
everything else constant, creates 98 jobs and
facilitates the opening of four new business
establishments that employ people. The
equivalent numbers for the sample mean are
223 jobs and 15 new business establish-
ments. We also found a statistically signifi-
cant relationship between our measures of
air traffic volume and the average MSA
wage. Yet, economic significance of this
relationship is not remarkable, as a substan-
tial increase in traffic volume would be
required to yield appreciable changes in
mean wages.
Thus, the main lessons from this work for
local authorities are the following. Most
importantly, adding new destinations yields
a stronger impact on regional development
than adding traffic to existing destinations.
At the same time, while increase in air traffic
can contribute to creating jobs and busi-
nesses, one should not expect a sizeable
increase in average income. We should note
that our results represent aggregate effect –
we have not evaluated which sectors of the
Bilotkach
economy benefit more from increase in air
traffic, whether it comes from extra flights
to existing destinations, or from adding new
services. We will leave this issue for future
studies.
The rest of the paper is organised as fol-
lows. The next section reviews the relevant
literature. This is followed by a discussion of
the data and estimation methodology.
Estimation results are presented and dis-
cussed in the following section, and the final
section concludes.
Literature survey
Academic studies on the impact of aviation
on economy are relatively scarce. Yet, over
the recent years we have seen a renewed
interest in careful examination of this rela-
tionship. The general consensus from the lit-
erature is, not surprisingly, that air services
have a positive impact on regional develop-
ment. The main differences between the
studies are in the data and methodologies
employed. It is therefore understandable that
quantitative estimates of the air traffic–
economic development relationships also dif-
fer across studies. Additionally, some papers
find that the relationship only holds for
some but not other sectors of the economy.
Studies most relevant to this paper
include van den Berg et al. (1996), Brueckner
(2003), Green (2007), Bel and Fageda (2008),
Button and Yuan (2013), Blonigen and
Cristea (2012), Chi and Baek (2013) and
Sheard (2014). The first paper in the list is
rather descriptive in nature, building an
argument for cooperation between airports
and the nearby businesses. Brueckner (2003)
uses a cross-sectional approach, analysing
the air traffic–employment relationship in
the US metropolitan areas in 1996. The
instrumental variables approach is used to
address the endogeneity problem (which is
another name for the feedback between the
employment levels and demand for air
1579
services we mentioned in the opening para-
graph). The main finding of that study is
that a 10% increase in passenger enplane-
ments yields a 1% increase in service sector
employment. A somewhat similar approach
(instrumental variables in a cross-sectional
setting) is employed by Sheard (2014). The
finding of that study is that air traffic volume
has a positive impact on service industry
employment; however, the effect on manu-
facturing employment is negative. Bel and
Fageda (2008) analyse whether the number
of non-stop intercontinental flights deter-
mines location of large firms’ headquarters.
They find support for this hypothesis. Their
dataset is also a cross-section.
Button and Yuan (2013) focus on the
relationship between air freight volume and
metropolitan area income and employment.
Their dataset covers 35 airports from 1990
to 2009, and their estimation technique of
choice is the vector autoregressive (VAR)
model. They conclude that air freight is
indeed a driver of local economic develop-
ment. Button and Yuan’s (2013) study spans
nearly the same time period as ours (our
data span 1993–2009); however, our study
encompasses the entire population of air-
ports in the US, providing commercial pas-
senger air services.
Studies by Green (2007) and Blonigen
and Cristea (2012) focus on the effect of air
service on growth rates in key economic per-
formance indicators. Green (2007) finds that
a 10% increase in passenger enplanements
per capita leads to a 3.9% higher population
growth and a 2.8% increase in employment
growth over the 1990–2000 period. Green’s
dataset is a cross-section of 100 largest US
airports. Blonigen and Cristea (2012) exploit
the airline deregulation as a quasi-natural
experiment leading to an increase in air traf-
fic. They choose to examine the impact of
deregulation-induced change in passenger air
traffic on long-term growth rates in over 300
US metropolitan areas. The study confirms
1580
the positive impact of air service on regional
growth, with the magnitude of this effect dif-
fering across the metropolitan areas.
Chi and Baek (2013) focus on the aggre-
gate data for passenger numbers and flight
volumes for the US aviation sector. The
study finds that both passenger traffic and
freight volumes tend to increase with eco-
nomic growth. This is in contrast to Button
and Yuan’s (2013) study, which suggests
that causality runs the other way.
Thus, our study expands the scope of
methodological approaches used to examine
the relationship between air travel and
regional economic development. Our dataset
encompasses all US primary commercial
passenger airports over a lengthy time
period, which includes all phases of the busi-
ness cycles. Unlike prior studies, we also
control for the impact of changes in the air-
line market structure, by including airport-
level concentration and airline market shares
at airports into our specifications.
In addition to the above studies, we
should mention the rather substantial litera-
ture on the effects of air traffic noise on
property values. A relatively recent contribu-
tion by McMillen (2004) includes an exten-
sive survey of prior studies in this area.
Our paper is also related to the literature
on the impact of public infrastructure invest-
ment. Indeed, airports in the United States
are run as public enterprises, owned by local
authorities. Here we should note that the
studies of the effects of public infrastructure
(most notable seminal contributions include
Aschauer, 1989 and Holz-Eakin, 1994) have
not reached a consensus as to whether this
public expenditure contributes to the local
economic growth.
Data and methodology
Our dataset is a 17-year panel of annual
observations for each US metropolitan area
Urban Studies 52(9)
housing a primary commercial passenger
airport. Primary airport is defined by the
Federal Aviation Administration (FAA) as
an airport with annual scheduled commer-
cial passenger air traffic exceeding
10,000 passengers. Our data span the years
1993–2009. We can define three broad cate-
gories of variables in our dataset. First, we
have the key dependent variables, which
are the indicators of regional economic
development. Second, we use two demo-
graphic control variables. The third set of
variables includes airport-level measures,
which in turn consist of our key measures
of air traffic, and airport-level controls rep-
resenting the degree of airport concentra-
tion and airline market competition.
This study uses three indicators of
regional economic development: total
employment, number of business establish-
ments with employees, and average weekly
wage. The respective data come from the
Bureau of Labor Statistics – a division of the
United States Department of Labor. All the
data are annual figures at the MSA level;
average weekly wage is adjusted for inflation
using 1995 as the base year. Employment
and average earnings are clear indicators of
regional economic development. Number of
business establishments can be thought of as
an indicator of competitive environment in
the area. Also, using this variable allows us
to draw parallels between our work and Bel
and Fageda (2008). Natural logarithms of
the respective variables will be used in all
specifications.
The two demographic control variables
are MSA-level population and unemploy-
ment rate. These are obtained from the US
Census Bureau. In regressions, we will use
natural logarithms of the respective vari-
ables. Increase in population is expected to
yield higher employment and more business
establishments, as well as potentially lead to
an increase in average wage. Increase in
Bilotkach
unemployment rate, other things equal,
should lead to a decrease in each of the three
key measures of economic development.
The majority of airport-level variables are
computed from the T100 Segment databank,
provided by the United States Department
of Transportation (DOT). This dataset
includes information about all commercial
airline services departing from US airports.
For this paper, we are only including the ser-
vices on the US domestic market. The infor-
mation in the raw dataset is provided
monthly at the airline-origin-destination-air-
craft type level (e.g. Delta Air Lines Boeing-
757 services from Los Angeles International
to New York John F. Kennedy airport in
January of 2000 are recorded separately
from the Boeing-737 services of the same
carrier on the same route in the same month)
and includes the number of flights per-
formed, seats provided, and passengers car-
ried. We have aggregated the data at the
annual level, giving us the total passenger
volume and the number of flights performed
from each airport. We have also computed
the number of unique destinations (at the
airport level) served with non-stop scheduled
passenger flights from each airport in every
given year. In this computation, we only
included those destinations served with at
least 100 flights per year – roughly two
flights per week were thus required for a des-
tination to count.
The three key measures of commercial
aviation activity we have computed will be
our key independent variables. The research
hypotheses are straightforward – increase in
both the number of flights and number of
destinations is expected to increase each of
the three key indicators of regional eco-
nomic development. We will be interested in
comparing the magnitudes of the corre-
sponding effects, with the view of under-
standing whether increasing traffic volume
(in terms of number of passengers or fre-
quency of flights) at existing routes will have
1581
a larger impact on economic development
than attracting non-stop flights to an addi-
tional destination. This question is clearly an
important one for airport managers and
local authorities, especially keeping in mind
that commercial passenger airports in the
United States are operated as public enter-
prises. As is the case with other variables,
our key dependent variables will be included
into our specifications in the logarithmic
form. This will of course enable us to inter-
pret the corresponding regression coeffi-
cients as elasticities.
Other airport-level variables we will use in
regressions as controls are airport-level con-
centration, airline market shares at the air-
port, and average airfares for flights
originating at the corresponding airport. As
the measure of airport-level concentration,
we will use a conventional Herfindhal-
Hirschman Index (HHI). HHI is the sum of
squared shares of flights, across all the air-
lines at an airport. Before computing HHI
and airlines’ flight-based market shares, we
have merged regional airlines with the
respective major carriers.1 Average annual
airport-level airfares are computed by the
DOT from the 10% sample of actual itiner-
aries.2 We adjust those fares for inflation
using 1993 as the base year. Last but not
least, each specification we will estimate will
include year indicator variables, to control
for the corresponding heterogeneity.
Other things equal, we can expect higher
airfares to be less conducive to regional eco-
nomic development, thereby yielding lower
employment, number of businesses, and
potentially lower wages in the metropolitan
area. We can of course expect this variable
to be endogenous, as an unobserved shock
that increases employment will also yield
higher airfares for flying to/from the area.
The effect of airport concentration on eco-
nomic development can potentially tell us
something about the importance of airlines’
loyalty programmes. Specifically, airlines
1582
dominating a local airport will likely attract
most local travellers into their frequent flier
programmes. On one hand, this may be a
source of the dominant carriers’ market
power (Borenstein, 1989, 1991; Lederman,
2008). On the other hand, considering that
frequent flier miles are essentially fringe ben-
efits, businesses might be drawn to concen-
trated airports. Further, large concentrated
airports are hubs, which brings us back to
Bel and Fageda’s (2008) evidence that hub
airports attract multinational firms.
Before we continue our discussion, it is
necessary to explore the issue of multi-
airport metropolitan areas. Some of the
largest MSAs in the US are homes to several
airports, such as Midway and O’Hare in the
Chicago area. Where this is the case, we
summed up total flights from all airports in
the MSA; summed up all unique destina-
tions served by non-stop flights from those
airports; and computed passenger-weighted
airport HHI and airline market shares. The
airport groupings thus obtained largely cor-
respond to those suggested by Brueckner et
al. (2014), with a couple of notable excep-
tions. First, Baltimore airport was consid-
ered separately from Washington Dulles and
Washington National, and San Jose was not
grouped with San Francisco and Oakland,
by virtue of being located in different MSAs.
Descriptive statistics for all the variables
are presented in Table 1. The distribution of
the main variables is understandably skewed,
as the data include observations from both
many smaller and few very large metropoli-
tan areas. Mean employment and number of
businesses are both about five times larger
than the corresponding median figures. The
same is true for the total number of flights
from the airport. We can also see that an
average US airport is quite well-connected to
the US aviation network, with a median air-
port featuring non-stop flights to 16 US des-
tinations. At the same time, airports are on
average rather concentrated: mean HHI of
Urban Studies 52(9)
0.51 is equivalent to a symmetric duopoly, or
two airlines each performing half of all the
flights from the airport. Bilotkach and
Lakew (2014) also report high levels of con-
centration in both large hubs and smaller
airports in the US.
The choice of our estimation methodol-
ogy will be driven by the econometric chal-
lenges we are facing. As noted above, the
key issue to be addressed is that of endo-
geneity inherent in the data generating pro-
cess. Clearly, an unobserved shock that
increases the region’s attractiveness for busi-
ness will also likely yield an increase in air
traffic to the region’s airport. This means
that the error term in the least squares
regression will be correlated with the depen-
dent variable, rendering coefficient estimates
biased and inconsistent. Additionally, our
estimates must take proper account of
MSA-specific heterogeneity, and the possi-
ble autocorrelation within and heteroscedas-
ticity across the cross-sections. To address
these issues, we will be taking advantage of
both the panel nature of our dataset and the
recently developed dynamic panel data anal-
ysis techniques.
We will be using MSA fixed effects mod-
els to account for regional heterogeneity.
Further, taking advantage of the panel
nature of our dataset, we will lag all the
dependent variables (except for year dum-
mies) one year. Clearly, an unobserved
shock this year is less likely to be correlated
to last year’s level of air traffic. Yet, last
year’s traffic could also contribute to this
year’s unobserved shock, so that the endo-
geneity problem is not completely solved by
simply using lagged independent variables.
Additionally, we will be using second lags of
total flights, number of non-stop destina-
tions, average airfare and airport-level HHI
as instruments for first lags of same. This
completes the setup for MSA-level two-stage
least squares fixed effects estimation. As a
final note, we will be using standard
Bilotkach
Table 1. Descriptive statistics.
Mean
Dependent variables
Total employment 565,551
Total number of establishments 33,885.5
Real weekly wage 496.22
Airport level variables
Total flights 25,222.1
Total passengers 1,782,273
Number of non-stop destinations 33.02
Airport level HHI 0.5120
Mean airfare, constant dollars 307.07
MSA level controls
Population 1,189,265
Unemployment rate 5.44
Note: Sample includes all metropolitan areas with airports handling over 10,000 passengers via scheduled commercial services.
errors robust to autocorrelation and
heteroscedasticity.
The fixed effects estimation is a useful
first step in our data analysis exercise, and
provides a clear reference point. However,
the issue of the dynamic nature of the under-
lying data generating process is not
addressed by this technique. There is an
inherent path-dependency in each of the key
indicators of regional economic develop-
ment we are using: this year’s employment
and income will clearly be positively corre-
lated with last year’s. This is a clear case of
omitted variable bias, rendering estimates
biased and inconsistent. Including a lagged
dependent variable on the right-hand side of
the regression specification does not, how-
ever, solve the problem, as this variable is
now correlated with the error term.
In order to address this endogeneity
threat, we will employ the generalized
method of moments (GMM) estimator for
dynamic panel data. Specifically, we will use
the system estimator proposed by Arellano
and Bover (1995), which built on and
improved the Arellano and Bond (1991)
GMM estimator. System GMM analysis is
specifically designed to address endogeneity
1583
Standard deviation Median
1,328,718 120,366
85,889.1 6,693.12
104.86 474.83
53,841.3 5101.00
4,302,731 180,930
39.12 16.00
0.3039 0.4311
110.31 310.75
2,854,425 254,401
2.48 4.90
issues with dynamic panel data models (i.e.
biases in the coefficient estimate for the
lagged dependent variable). The idea behind
the Arellano-Bover estimator involves using
further lags (as well as lagged differences) of
dependent variable to build a set of instru-
ments to yield consistent estimates in this
dynamic setting. We implement the
Arellano-Bover estimator in the following
way. In all cases, we will include first lag of
the respective dependent variable into the
econometric specifications. Instruments will
be constructed based on third to fifth lags
for specifications with employment and
average wage as dependent variables; and
second and third lags for regressions with
number of business establishments as depen-
dent variable. These lags were chosen for
instrument specifications as they satisfy both
of the fundamental conditions for the system
GMM estimator: no correlation between the
instruments and the residuals, and no auto-
correlation in the residuals.
The GMM estimator we are using has
gained popularity in the literature, as studies
have demonstrated its desirable properties in
settings similar to the one we are facing (e.g.
Bun and Windmejer, 2010). We should also
1584
note that this dynamic panel data GMM
estimator has been applied to studying such
issues as agglomeration economies (Brülhart
and Mathys, 2008) and the impact of public
debt on economic growth (Panizza and
Presbitero, 2014).
To sum up our discussion, we will esti-
mate specifications of the form:
X data GMM regressions. Tables 2–4 report
logYit = ai + bt It + g1 logðTraffici, t1 Þ
+ g 2 logðDestinationsi, t1 Þ + dXi, t1 + eit
where Yit is one of the three measures of
regional economic development in metropol-
itan area i at time t; ai represent MSA fixed
effects; bt are coefficients measuring year-
specific effects, with It representing the cor-
responding indicator variables. The key
regression coefficients for our purposes are
g 1 and g 2 . For each of the three dependent
variables, we will run specifications where
either g 1 or g2 will be restricted to zero –
that is, only traffic or only number of desti-
nations will be included. Further, Xi, t1 is
the vector of control variables: natural loga-
rithm of area population, unemployment
rate, airport-level concentration, average air-
fare, and airlines’ market shares at the area
airport(s). Then, d is the vector of coeffi-
cients on those control variables. The error
term is denoted via eit . Finally, note that
both key independent variables and control
variables are lagged one year to mitigate the
endogeneity problem.
We will apply to the above specification
both the conventional two-stage least
squares MSA fixed effects estimator, and
the Arellano-Bover estimator as described
earlier in this section (technically, applica-
tion of Arellano-Bover estimator will require
including at least one lagged dependent vari-
able in addition to the key variables and var-
ious controls). The estimation results are
presented and discussed in the next section.
Urban Studies 52(9)
Results and discussion
Results of our data analysis exercise are pre-
sented in Tables 2–8. Tables 2–7 show results
using number of flights as the measure of air-
line traffic, with the aim of demonstrating,
inter alia, the difference in results between
the two stage least squares (2SLS) fixed
effects and Arellano-Bond dynamic panel
the fixed effects estimation results, whereas
Arellano-Bover dynamic panel data GMM
results are in Tables 5–7. Each table corre-
sponds to specifications using the same indi-
cator of regional economic development as
the dependent variable. Results for total
employment are in Tables 2 and 5; output
for number of establishments with employ-
ees are in Tables 3 and 6; and results for
average weekly wage can be found in Tables
4 and 7. Within each table, we report six
specifications. First, we report regressions
which only include one of the two key inde-
pendent variables, as well as a specification
that includes both. Further, each of the three
specifications is run excluding and including
the airline effects (individual airlines’ airport
market shares, lagged one year). As a remin-
der, we lag all the independent variables
except the year dummies one year. We also
treat number of flights, number of destina-
tions, airport HHI and average airfare as
endogenous variables, as use second lags of
those as instruments. Thus, fixed effects
results reported in Tables 2–4 are obtained
using the two-stage least squares estimation
technique.
In specifications reported in Table 8, we
use total traffic volume instead of the num-
ber of flights. To save space, we only report
dynamic panel data GMM results from
specifications which include airline market
share variables. Table 8 reports two specifi-
cations for each dependent variable: regres-
sion where traffic volume is included as the
Bilotkach 1585

Table 2. Regressions for total employment, fixed effects.

(1) (2) (3) (4) (5) (6)

Constant 3.9860** 3.0291** 3.9953** 3.1147** 3.9940** 3.1111**

(0.8575) (0.6856) (0.8419) (0.7683) (0.8407) (0.7691)
Log(total flights) 0.0093* 0.0063 – – 0.0041 0.0041
(0.0054) (0.0052) (0.0064) (0.0061)
Log(number of destinations) – – 0.0222* 0.0112 0.0204 0.0095
(0.0141) (0.0139) (0.0154) (0.0150)
Log(population) 0.6370** 0.7182** 0.6385** 0.7132** 0.6361** 0.7110**
(0.0703) (0.0564) (0.0700) (0.0643) (0.0690) (0.0636)
Log(unemployment rate) -0.1025** -0.1015** -0.1054** -0.1031** -0.1050** -0.1027**
(0.0085) (0.0082) (0.0092) (0.0089) (0.0094) (0.0091)
Log(average airfare) -0.0096 -0.0158 -0.0118 -0.0163 -0.0113 -0.0161
(0.0153) (0.0136) (0.0130) (0.0125) (0.0136) (0.0130)
Log(airport HHI) 0.0230** 0.0273** 0.0251* 0.0265** 0.0275** 0.0290**
(0.0101) (0.0104) (0.0129) (0.0130) (0.0119) (0.0120)
Airline effects No Yes No Yes No Yes
Adjusted R-squared 0.9994 0.9994 0.9994 0.9994 0.9994 0.9994
Durbin-Watson statistic 0.5250 0.5977 0.5493 0.5980 0.5505 0.6007
Sargan statistic 0.0584 0.1435 0.1196 0.1234 0.1282 0.1330
(p-value) (0.8089) (0.7047) (0.7294) (0.7253) (0.7202) (0.7153)

Notes: Dependent variable is the natural logarithm of total employment at the MSA level.
Number of observations = 4412.
Estimation methodology = two-stage least squares with MSA fixed effects.
All independent variables are lagged one period. Second lags of total flights, number of destinations, airfare and HHI are
used as instruments.
Year indicator variables are included into all regressions.
Airline effects correspond to individual carriers’ market shares at the airport, lagged one period.
Conventional significance notations are used: * \ 10%; ** \ 5%.

only measure of air transport activity is
complemented with a specification where
number of destinations served is added to it.
That is, specifications reported in Table 8
are equivalent to regressions (2) and (6)
from Tables 5–7, the only difference being
the replacement of total flights with the total
passenger volume as the measure of traffic.
Generally speaking, fixed effects specifi-
cations demonstrate remarkable fit to data,
which is not unusual and is also found else-
where in the literature. Values of Durbin-
Watson statistics are reported in the corre-
sponding tables to clearly demonstrate the
presence of significant autocorrelation in the
data, and motivate the use of dynamic panel
data GMM technique. In Tables 5–8, we
report Jansen’s J-statistic and the corre-
sponding p-values to demonstrate validity of
instruments. The p-values demonstrate that
we cannot reject the null hypothesis that the
instruments we selected are valid. Overall,
we observe that moving from fixed effects to
Arellano-Bover specifications, the magni-
tude of the coefficients that retain signifi-
cance in both is reduced by about a half
(with some exceptions).
We will build our discussion by compar-
ing fixed effects and dynamic panel data esti-
mation results. For total employment, fixed
effects do not show robust effects of either
total air traffic or number of non-stop desti-
nations. While those variables are significant
in specifications (1) and (3) in Table 2, these
1586 Urban Studies 52(9)

Table 3. Regressions for number of establishments, fixed effects.

(1) (2) (3) (4) (5) (6)

Constant -0.8419 -0.8951 -0.8370 -0.8923 -0.8416 -0.9042

(1.0428) (1.0391) (1.0638) (1.0546) (1.0434) (1.0366)
Log(total flights) 0.0144** 0.0135** – – 0.0142** 0.0137**
(0.0051) (0.0052) (0.0053) (0.0053)
Log(number of destinations) – – 0.0068 0.0046 0.0007 -0.0010
(0.0077) (0.0085) (0.0076) (0.0084)
Log(population) 0.7843** 0.7890** 0.7926** 0.7969** 0.7843** 0.7898**
(0.0853) (0.0846) (0.0861) (0.0850) (0.0853) (0.0845)
Log(unemployment rate) -0.0467** -0.0465** -0.0480** -0.0478** -0.0468** -0.0464**
(0.0087) (0.0086) (0.0087) (0.0085) (0.0087) (0.0086)
Log(average airfare) 0.0004 0.0009 -0.0011 0.0004 0.0004 0.0009
(0.0113) (0.0109) (0.0114) (0.0110) (0.0112) (0.0109)
Log(airport HHI) 0.0111 0.0112 0.0027 0.0030 0.0112 0.0111
(0.0086) (0.0087) (0.0085) (0.0086) (0.0088) (0.0089)
Airline effects No Yes No Yes No Yes
Adjusted R-squared 0.9993 0.9993 0.9993 0.9993 0.9993 0.9993
Durbin-Watson statistic 0.4365 0.4537 0.4230 0.4446 0.4363 0.4542
Sargan statistic 0.1808 0.1914 0.2153 0.2009 0.2038 0.2081
(p-value) (0.6706) (0.6617) (0.6426) (0.6539) (0.6516) (0.6482)

Notes: Dependent variable is the natural logarithm of the number of establishments with employees at the MSA level.
Number of observations = 4412.
Estimation methodology = two-stage least squares with MSA fixed effects.
All independent variables are lagged one period. Second lags of total flights, number of destinations, airfare and HHI are
used as instruments.
Year indicator variables are included into all regressions.
Airline effects correspond to individual carriers’ market shares at the airport, lagged one period.
Conventional significance notations are used: * \ 10%; ** \ 5%.

effects do not survive including airline mar-
ket shares into regressions. In contrast to
this, dynamic panel data estimates show that
number of destinations has a significant
robust effect on total employment, whereas
the number of flights does not. Passenger
volume has a positive and significant effect
on total employment. The corresponding
elasticity is still quite small – a 10% increase
in the number of passengers is associated
with a 0.06–0.09% increase in total employ-
ment. The effect of additional destinations
keeping traffic volume constant is modest as
well: a 10% increase in the number of desti-
nations will yield a 0.13% increase in total
employment, based on results from Table 5.
The corresponding estimate from Table 8 is
a bit smaller: a 10% increase in the number
of destinations leads to a 0.1% increase in
employment.
Let us now translate the above reported
elasticities into the number of jobs created as
traffic volume and/or number of destinations
served from the region’s airport(s) increases.
We will report these estimates for both sam-
ple mean and median (this is appropriate as
the distribution of MSAs by the key develop-
ment indicators is rather asymmetric). If we
connect a median MSA with an extra desti-
nation (which will be equivalent to a 6.25%
increase in this variable, given that a median
airport is connected to 16 other airports with
non-stop services); our estimation results
imply that this will create 98 jobs in the
Bilotkach 1587

Table 4. Regressions for average wage, fixed effects.

(1) (2) (3) (4) (5) (6)

Constant –3.0564** –2.4603** –2.2156* –1.0983 –2.0382* -0.8870

(1.3077) (1.1146) (1.2154) (1.1343) (1.2428) (1.1533)
Log(total flights) –0.0100* -0.0160** – – –0.0326 –0.0352**
(0.0055) (0.0057) (0.0076) (0.0074)
Log(number of – – 0.0902** 0.0874** 0.1015** 0.0992**
destinations) (0.0154) (0.0159) (0.0181) (0.0183)
Log(population) 0.8069** 0.7604** 0.7133** 0.6205** 0.7189** 0.6241**
(0.1030) (0.0869) (0.0965) (0.0893) (0.0973) (0.0894)
Log(unemployment rate) –0.0444** -0.0526** –0.0531** -0.0601** –0.0554** –0.0626**
(0.0135) (0.0138) (0.0136) (0.0135) (0.0140) (0.0138)
Log(average airfare) –0.0907** –0.0807** –0.0911** –0.0752** –0.0921** –0.0736**
(0.0367) (0.0337) (0.0304) (0.0312) (0.0360) (0.0372)
Log(airport HHI) -0.1003** –0.0886** –0.0426** –0.0411** –0.0606** –0.0600**
(0.0144) (0.0141) (0.0141) (0.0134) (0.0141) (0.0135)
Airline effects No Yes No Yes No Yes
Adjusted R-squared 0.8832 0.8939 0.8888 0.8947 0.8871 0.8935
Durbin-Watson statistic 0.8468 0.8462 0.8332 0.8411 0.8420 0.8571
Sargan statistic 0.2559 0.2416 0.2894 0.2990 0.3229 0.2751
(p-value) (0.6128) (0.6230) (0.5905) (0.5844) (0.5698) (0.5999)

Notes: Dependent variable is the natural logarithm of the mean weekly wage at the MSA level.
Number of observations = 4412.
Estimation methodology = two-stage least squares with MSA fixed effects.
All independent variables are lagged one period. Second lags of total flights, number of destinations, airfare and HHI are
used as instruments.
Year indicator variables are included into all regressions.
Airline effects correspond to individual carriers’ market shares at the airport, lagged one period.
Conventional significance notations are used: * \ 10%; ** \ 5%.

region, other things equal. The equivalent
number for the sample mean is 223 jobs.
Results from Table 8 imply that adding 100
passengers per day to the volume served by
the local airport creates 98 jobs at the sample
mean and 314 jobs at the sample median.
This difference is driven by the fact that the
hypothetical traffic increase corresponds to
2% of the mean, but 20% of the median pas-
senger volume. Further, if the hypothetical
additional 100 passengers per day travel to a
destination which has not yet been served
from an MSA, the number of jobs created at
the sample mean will increase to 254, with
nearly three quarters of these jobs created
through the new destination rather than an
increase in passenger volume. The
corresponding number at the sample median
will be 323.
Results for the number of establishments
are quite interesting, as the key variables
change their significance as we move from
fixed effects to dynamic panel data results.
Specifically, fixed effects results suggest that
total traffic is a more important determinant
than number of destinations, whereas
Arellano-Bover estimates reach the opposite
conclusion. Further, results from Table 8
imply that passenger volume affects the
number of establishments negatively, even
though the coefficients never reach statistical
significance. The elasticity implied by the
dynamic panel data estimates is similar in
magnitude to that reported above for the
1588 Urban Studies 52(9)

Table 5. Regressions for employment, dynamic panel data GMM.

(1) (2) (3) (4) (5) (6)

Lagged dependent 0.4511** 0.4457** 0.3919** 0.3861** 0.3939** 0.3884**

(0.0705) (0.0702) (0.0791) (0.0791) (0.0784) (0.0784)
Log(total flights) 0.0034 0.0035 – – 0.0005 0.0006
(0.0025) (0.0025) (0.0025) (0.0025)
Log(number of destinations) – – 0.0130** 0.0132** 0.0127** 0.0128**
(0.0040) (0.0040) (0.0039) (0.0039)
Log(population) 0.3294** 0.3328** 0.3672** 0.3719** 0.3657** 0.3702**
(0.0584) (0.0575) (0.0629) (0.0625) (0.0624) (0.0620)
Log(unemployment rate) -0.0564** -0.0561** -0.0631** -0.0628** -0.0628** -0.0625**
(0.0085) (0.0085) (0.0095) (0.0095) (0.0093) (0.0094)
Log(average airfare) -0.0067 -0.0045 -0.0071 -0.0052 -0.0070 -0.0052
(0.0054) (0.0056) (0.0056) (0.0059) (0.0055) (0.0058)
Log(airport HHI) 0.0110** 0.0109** 0.0149** 0.0147** 0.0152** 0.0151**
(0.0035) (0.0035) (0.0035) (0.0035) (0.0039) (0.0039)
Airline effects No Yes No Yes No Yes
Jansen’s J-statistic 53.82 52.90 45.88 45.06 46.03 45.24
(p-value) (0.1478) (0.6270) (0.3941) (0.8536) (0.4293) (0.8750)

Notes: Dependent variable is the natural logarithm of total employment at the MSA level.
Number of observations = 4057.
Estimation methodology = dynamic panel data GMM with MSA fixed effects.
Third to fifth lags of dependent variable are used to construct the instruments utilised by the estimator.
All independent variables are lagged one period. Second lags of total flights, number of destinations, airfare and HHI are
used as instruments.
Year indicator variables are included into all regressions.
Airline effects correspond to individual carriers’ market shares at the airport, lagged one period.
Conventional significance notations are used: * \ 10%; ** \ 5%.

total employment. That is, a 10% increase
in the number of destinations served is asso-
ciated with a 0.1% increase in the number of
establishments with employees (0.13% if we
look at Table 8). Our results suggest that an
extra destination will facilitate the opening
of 15 new business establishments with
employees at the sample mean; the corre-
sponding number for the sample median is
four.
Fixed effects results for the average wage
are quite surprising: even though both total
air traffic and number of destinations are
found to be significant determinants of aver-
age income, the sign of the effect of total
traffic is opposite to what we expected. This
anomaly disappears in the dynamic panel
data estimation results, further supporting
our claim that fixed effects regressions
potentially suffer from the omitted variable
bias, rendering the coefficients biased and
inconsistent. As with fixed effects, total
flights, passenger volume, and number of
non-stop destinations are found to be signif-
icant determinants of average wage.
However, the magnitude of the effect is
much larger for the latter variable. While a
10% increase in the total number of flights,
average wage increases by 0.07–0.16%; the
same figure for the 10% increase in the num-
ber of destinations is 0.17–0.3%.
Admittedly, the economic significance of
this effect is dubious: the median wage in
our dataset implies the median annual
income of $24,700 (in year 1993 dollars), so
that even a 1% increase in this figure will
Bilotkach 1589

Table 6. Regressions for number of establishments, dynamic panel data GMM.

(1) (2) (3) (4) (5) (6)

Lagged dependent 0.7010** 0.6625** 0.6439** 0.6080** 0.6527** 0.6187**

(0.0512) (0.0509) (0.0531) (0.0533) (0.0541) (0.0539)
Log(total flights) 0.0024 0.0026 – – 0.0008 0.0007
(0.0025) (0.0026) (0.0027) (0.0026)
Log(number of destinations) – – 0.0103** 0.0103** 0.0099** 0.0096**
(0.0040) (0.0040) (0.0041) (0.0040)
Log(population) 0.2689** 0.2979** 0.3269** 0.3539** 0.3147** 0.3397**
(0.0817) (0.0830) (0.0825) (0.0839) (0.0837) (0.0853)
Log(unemployment rate) -0.1292** -0.1315** -0.1304** -0.1310** -0.1307** -0.1305**
(0.0240) (0.0235) (0.0240) (0.0236) (0.0243) (0.0236)
Log(average airfare) -0.0456** -0.0462** -0.0472** -0.0470** -0.0467** -0.0462**
(0.0117) (0.0115) (0.0119) (0.0118) (0.0120) (0.0117)
Log(airport HHI) 0.0133** 0.0137** 0.0156** 0.0157** 0.0159** 0.0160**
(0.0054) (0.0054) (0.0056) (0.0055) (0.0057) (0.0057)
Airline effects No Yes No Yes No Yes
Jansen’s J-statistic 38.32 33.87 34.79 31.76 34.94 32.06
(p-value) (0.1803) (0.8351) (0.2917) (0.8968) (0.3274) (0.9107)

Notes: Dependent variable is the natural logarithm of of the number of establishments with employees at the MSA level.
Number of observations = 4057.
Estimation methodology = dynamic panel data GMM with MSA fixed effects.
Second and third lags of dependent variable are used to construct the instruments utilised by the estimator.
All independent variables are lagged one period. Second lags of total flights, number of destinations, airfare and HHI are
used as instruments.
Year indicator variables are included into all regressions.
Airline effects correspond to individual carriers’ market shares at the airport, lagged one period.
Conventional significance notations are used: * \ 10%; ** \ 5%.

require increasing the number of destina-
tions served with non-stop services by at
least a third (if we take a higher-end estimate
of the respective effect).
Our control variables behave as expected.
Population has a strong positive effect on
each of the three indicators of regional eco-
nomic development, whereas unemployment
rate affects each of them negatively. Airport
concentration positively affects total
employment and number of business estab-
lishments, as we expected. However, the
effect of this variable on average wage is
negative. This result is quite consistent with
frequent flier miles being considered a fringe
benefit: firms located in areas, where
employees are more likely to earn and
redeem miles3 appear to be able to pay lower
wages to their employees. The statistical sig-
nificance of this effect is however not robust,
and its economic significance is dubious.
Average airfare negatively affects the num-
ber of business establishments in the area, as
well as the average wage, and has no effect
on the total employment.
The airfare–wage effect we observe
deserves some discussion, as the reader will
be understandably sceptical about the direc-
tion of causality here. Indeed, we can expect
lower income areas to exhibit lower demand
for air travel, naturally yielding lower air-
fares. However, we can look at this issue
from the supply side and suggest that lower
airfare may induce a reduction in air traffic
volume or quality of service, suppressing
business activity in the area. We should also
1590 Urban Studies 52(9)

Table 7. Regressions for average wage, dynamic panel data GMM.

(1) (2) (3) (4) (5) (6)

Lagged dependent 0.6214** 0.7032** 0.5959** 0.6906** 0.6314** 0.7029**

(0.0870) (0.0570) (0.0891) (0.0582) (0.0794) (0.0559)
Log(total flights) 0.0162** 0.0107** – – 0.0069* 0.0045
(0.0056) (0.0037) (0.0038) (0.0030)
Log(number of destinations) – – 0.0291** 0.0196** 0.0235** 0.0170**
(0.0076) (0.0046) (0.0061) (0.0040)
Log(population) 0.2136* 0.1651** 0.2793** 0.2191** 0.2570** 0.2101**
(0.1135) (0.0954) (0.1137) (0.0941) (0.1072) (0.0936)
Log(unemployment rate) -0.0568** -0.0536** -0.0547** -0.0509** -0.0535** -0.0505**
(0.0237) (0.0192) (0.0228) (0.0186) (0.0216) (0.0183)
Log(average airfare) -0.0429** -0.0258** -0.0416** -0.0246** -0.0374** -0.0236**
(0.0160) (0.0110) (0.0152) (0.0107) (0.0140) (0.0105)
Log(airport HHI) -0.0127* -0.0063 -0.0100* -0.0039 -0.0042 -0.0008
(0.0065) (0.0046) (0.0061) (0.0044) (0.0051) (0.0041)
Airline effects No Yes No Yes No Yes
Jansen’s J-statistic 27.11 43.45 27.95 46.19 32.90 48.28
(p-value) (0.9636) (0.8485) (0.9520) (0.7723) (0.8675) (0.7265)

Notes: Dependent variable is the natural logarithm of mean weekly wage at the MSA level.
Number of observations = 4057.
Estimation methodology = dynamic panel data GMM with MSA fixed effects.
Third to fifth lags of dependent variable are used to construct the instruments utilised by the estimator.
All independent variables are lagged one period. Second lags of total flights, number of destinations, airfare and HHI are
used as instruments.
Year indicator variables are included into all regressions.
Airline effects correspond to individual carriers’ market shares at the airport, lagged one period.
Conventional significance notations are used: * \ 10%; ** \ 5%.

recall that airfare in our specification is
lagged one year, and the second lag is used
as an instrument, lessening the possibility of
the causality running in the wage–price
direction. Including airline market shares
does not qualitatively affect dynamic panel
data estimation results. Quantitatively, we
only observe visible changes in values of the
estimates in average wage regressions.
Summing up, we can suggest the follow-
ing takeaway messages from our data analy-
sis. First, number of destinations served with
non-stop flights from the area airports comes
out as a robust predictor of each of the three
indicators of regional economic development
used in our study. The size of the effect is
small, but impact on both employment level
and number of business establishments
exhibits both economic and statistical signifi-
cance. Impact of the number of non-stop
destinations on average wage is significant
statistically, but not economically. Second,
air traffic volume, when measured by the
number of flights, has little robust significant
effect on either of the three measures of eco-
nomic development. When measured by the
number of passengers, however, we can con-
clude that volume of air traffic positively
affects employment level, and the magnitude
of this effect sometimes approaches that for
the number of destinations served with non-
stop flights.
Our study leaves several questions open
at this stage, and we believe that further data
analysis could shed light on them. First, we
have not considered the question of air
Bilotkach 1591

Table 8. Dynamic panel data GMM results with total passenger volume.

Dependent variable
Log(employment) Log(establishments) Log(wage)

Lagged dependent 0.4257** 0.3799** 0.6458** 0.5987** 0.6090** 0.6360**

(0.0727) (0.0797) (0.0511) (0.0536) (0.1001) (0.0970)
Log(total passengers) 0.0087** 0.0058* -0.0015 -0.0055 0.0238** 0.0162**
(0.0031) (0.0032) (0.0032) (0.0036) (0.0094) (0.0081)
Log(number of destinations) – 0.0101** – 0.0133** – 0.0148**
(0.0039) (0.0045) (0.0063)
Log(population) 0.3425** 0.3742** 0.3298** 0.3730** 0.2072* 0.2206*
(0.0584) (0.0627) (0.0835) (0.0856) (0.1159) (0.1212)
Log(unemployment rate) -0.0558** -0.0617** -0.1359** -0.1315** -0.0579** -0.0493**
(0.0083) (0.0093) (0.0050) (0.0238) (0.0210) (0.0208)
Log(average airfare) 0.0013 -0.0012 -0.0500** -0.0513** -0.0203 -0.0187
(0.0058) (0.0062) (0.0127) (0.0128) (0.0126) (0.0130)
Log(airport HHI) 0.0124** 0.0160** 0.0116** 0.0238** -0.0103 -0.0039
(0.0033) (0.0036) (0.0050) (0.0054) (0.0062) (0.0058)
Jansen’s J-statistic 49.33 43.77 32.82 30.76 22.72 30.87
(p-value) (0.7235) (0.9009) (0.8697) (0.9346) (0.9999) (0.9955)

Notes: This table presents specifications equivalent to (2) and (6) from Tables 5–7.
Number of observations = 4057.
Estimation methodology = dynamic panel data GMM with MSA fixed effects.
Same lags as in the corresponding GMM specifications reported in Tables 5–7 are used to construct instruments.
All independent variables are lagged one period. Second lags of total flights, number of destinations, airfare and HHI are
used as instruments.
Year indicator variables and are included into all regressions.
Airline market shares at the airport, lagged one period, are included into all specifications, but not reported.
Conventional significance notations are used: * \ 10%; ** \ 5%.

traffic–employment relationship by sectors The data analysis could also be repeated

of economy. Note that some of the previous
studies have focused on the service sector,
and Sheard (2014) even indicated that the
relationship between air traffic volume and
manufacturing sector employment is nega-
tive. The main contribution of this study is,
however, in introducing a new methodologi-
cal approach to analysing the air traffic–
economic development relationship, which
justifies, in our view, working with the
aggregate data. Second, we have conducted
our analysis for the entire population of US
metropolitan areas. Further studies could
separately focus on larger versus smaller
metropolitan areas, to evaluate whether
effects we found here hold for different sub-
samples.
in the future, to see whether the recent wave
of mergers in the US airline industry had
changed any of the relationships we reported
here. Since 2005, there have been several
high-profile mergers in the US airline indus-
try: US Airways–America West, Delta–
Northwest, United–Continental, and
Southwest–Airtran consolidation events
have each led to the disappearance of a
major player in the industry. We have
demonstrated the link between airline mar-
ket structure and regional economic devel-
opment, and future studies could evaluate
whether recent events which appear to have
reduced the extent of competition in the US
airline industry could have affected regional
development.
1592 Urban Studies 52(9)

Concluding comments destination, keeping everything else con-

stant, creates 98 jobs and facilitates the
This study examines the issue of the link
opening of four new business establishments
between air traffic and regional economic
that employ people.
development. Our approach is different from
Our results have very clear implications for
other studies in the literature in several impor-
airport management and local authorities.
tant dimensions. First, this paper is the first to
Specifically, our results suggest that attracting
apply the dynamic panel data GMM metho-
services to new destinations will have a larger
dology to this issue. Second, we are using a 17-
impact on local economy than expanding ser-
year panel covering all metropolitan areas in
vices from a local airport to existing destina-
the US, whereas previous studies have dealt
tions. This could potentially clash with the
with cross-sections and/or samples of metro-
incentives of network carriers, especially at
politan areas. Third, we examine the potential
smaller airports – those airlines may be more
impact of both traffic volume and the number
interested in responding to higher demand by
of destinations served with non-stop flights:
expanding services to their hubs than in open-
the literature suggests that both can matter,
ing new routes from an airport. Further, local
but the two metrics have not yet been consid-
authorities should not be afraid of increased
ered together in a systematic way. Fourth, we
airline concentration at the local airports, as
explore the relationship between airline market
long as the potential price increase from
structure and regional economic development.
higher concentration is not too high – the two
At the same time, we have selected to use the
variables tend to have opposite effects on the
aggregate employment figures in this study,
local economy, and there is a substantial liter-
without considering the impact of air traffic on
ature demonstrating the positive link between
employment by sectors of the economy.
airport concentration and airfares (see
We consider three measures of economic
Bilotkach and Lakew, 2014, for a recent
development (total employment, number of
review of this body of work). At the same
business establishments, and average weekly
time, it would probably be an exaggeration to
wage) at the MSA level. We find that a 10%
call local airports ‘engines of economic devel-
increase in the number of flights is associ-
opment’. It is true that there is a relationship
ated with a 0.1% increase in average wage,
between air traffic and employment; however,
with the impact of this variable on employ-
the size of the corresponding effect is quite
ment and number of business establishments
modest. Further, the effect of air traffic on
not being statistically significant. Air traffic
average wage is significant only statistically,
volume measured by the number of passen-
but not economically.
gers has a positive and significant effect on
We would like to conclude by saying that
employment and wage, but not on the num-
this study introduces a new promising meth-
ber of business establishments. Number of
odological approach to examining the
destinations served by non-stop flights is
important issue of the relationship between
found to have a robust positive impact on
air traffic and regional economic develop-
each of the three measures of economic
ment. Further work will be required to ela-
development. A 10% increase in this vari-
borate on this issue.
able yields a 0.13% increase in employment;
a 0.1% increase in the number of business Funding
establishments; and about 0.2% increase in This research received no specific grant from any
average weekly wage. At the sample median, funding agency in the public, commercial, or not-
connecting an MSA with an extra for-profit sectors.
Bilotkach
Notes
1. Some services, in particular on thinner routes,
are delegated by the major carriers to regional
airlines, typically using smaller jet and/or tur-
boprop aircraft. Original T100 dataset codes
regional airlines differently from the majors.
Details on the procedure used to merge regio-
nals with the majors are available from the
author upon request.
2. This sample is known as the Databank
DB1B, and is routinely used in studies of
pricing and competition on airline markets.
What we use in this paper are the average
fares computed by US DOT based on this
dataset, which are available for download
from the agency’s website.
3. High airport-level concentration implies
higher likelihood of all travel with the same
airline, making it easier for the passenger to
reach the number of miles required for award
travel.
References
Arellano M and Bond S (1991) Some tests of spe-
cification for panel data: Monte-Carlo evi-
dence and an application to employment
equations. Review of Economic Studies 58:
277–297.
Arellano M and Bover O (1995) Another look at
the instrumental-variable estimation of error-
component models. Journal of Econometrics
68: 29–52.
Aschauer D (1989) Is public expenditure produc-
tive? Journal of Monetary Economics 23:
177–200.
Bel G and Fageda X (2008) Getting there fast:
Globalization, intercontinental flights, and
location of headquarters. Journal of Economic
Geography 8: 471–495.
Bilotkach V and Lakew P (2014) On sources of
market power in the airline industry: Panel
data evidence from US airports. Transporta-
tion Research Part A 59: 288–305.
Blonigen BA and Cristea AD (2012) Airports and
urban growth: Evidence from a quasi-natural
experiment. NBER working paper no. 18278.
NBER, Cambridge, MA, August.
1593
Borenstein S (1989) Hubs and high fares: Domi-
nance and market power in the US airline
industry. The RAND Journal of Economics
20(3): 344–365.
Borenstein S (1991) The dominant-firm advan-
tage in multiproduct industries: Evidence from
the US airlines. Quarterly Journal of Econom-
ics 106(4): 1237–1266.
Brueckner J (2003) Airline traffic and urban eco-
nomic development. Urban Studies 40: 1455–1469.
Brueckner J, Lee D and Singer E (2014) City-
pairs versus airport-pairs: A market-definition
methodology for the airline industry. Review
of Industrial Organization 44: 1–25.
Brülhart M and Mathys NA (2008) Sectoral
agglomeration economies in a panel of Eur-
opean regions. Regional Science and Urban
Economics 38: 348–362.
Bun MGJ and Windmejer F (2010) The weak
instrument problem of the system GMM esti-
mator in dynamic panel data models. The
Econometrics Journal 13: 95–126.
Button K and Yuan J (2013) Airfreight transport
and economic development: An examination
of causality. Urban Studies 50: 329–340.
Chi J and Baek J (2013) Dynamic relationship
between air transport demand and economic
growth in the United States: A new look.
Transport Policy 29: 257–260.
Green RK (2007) Airports and economic develop-
ment. Real Estate Economics 35: 91–112.
Holz-Eakin D (1994) Public sector capital and the
‘productivity puzzle’. The Review of Economics
and Statistics 76: 12–21.
Lederman M (2008) Are frequent flier programs
a cause of the ‘hub premium’? Journal of Eco-
nomics and Management Strategy 17: 35–66.
McMillen DP (2004) Airport expansion and prop-
erty values: The case of Chicago O’Hare air-
port. Journal of Urban Economics 55: 627–640.
Panizza U and Presbitero AF (2014) Public debt
and economic growth: Is there a causal effect?
Journal of Macroeconomics 41: 21–41.
Sheard N (2014) Airports and the production of
goods and services. Journal of Urban Econom-
ics 80: 133–152.
van den Berg L, van Klink HA and Pol PMJ
(1996) Airports as centres of economic
growth. Transport Reviews 16: 55–65.