The Economic Catalytic Effects of Air Transport in Europe



The Economic Catalytic Effects of Air Transport in Europe

Authors

A Cooper, E Britton, D Tinsley, Oxford Economic Forecasting, UK; L Price, Mott MacDonald, UK

Description

This study develops a robust methodology for measuring the so-called ?economic catalytic impacts? of air transport, and provides indicative estimates for two airports ? Brussels International and Belfast International? and for the EU as a whole.

Abstract

Air transport is a rapidly growing sector in many economies. The growth in air transport has a wide range of associated benefits and costs for the economies concerned. These include:

· Direct impacts on employment and output in the aviation industry itself.
· Indirect impacts on employment and output in the supply chain to the aviation industry.
· Induced impacts on employment and output as those employed directly and indirectly in air transport services use their earnings to buy other goods and services.
But the aim of this study (sponsored by EUROCONTROL, ATAG, ACI Europe and ACARE) is to develop a robust methodology for measuring the so-called ?economic catalytic impacts? of air transport. We define these as:

The net economic effects (eg on employment, incomes, government finances etc) resulting from the contribution of air transport to tourism and trade (demand-side effects) and the contribution to GDP of growth in air transport usage (the supply-side performance of the economy).

We also find that it is useful to distinguish between ?demand-side economic catalytic effects?, which operate through the use of air services to transport tourists and goods, and ?supply-side economic catalytic impacts?, which represent the net effects of air transport on the supply-side performance of the economy and so have long-run implications for productivity and living standards.

We have verified the practicality of our methodology for quantifying the economic catalytic impacts of air transport by analysing the economic contribution of two European airports - Brussels International, a large European airport, and a regional airport, Belfast International. In addition, we have developed an indicative estimate of the importance of the economic catalytic impacts of air transport for the EU as a whole.

The key findings to highlight are:

(i) Demand-side economic catalytic effects
· EU residents travelling by air spend more as tourists outside the EU than visitors arriving into the EU by air do ? by around 0.3% of GDP (31 billion euros in 2002) for the EU as a whole.

· However, these quantitative estimates do not provide a comprehensive picture of the impact of air transport on tourism. There are several reasons why greater international tourism can be beneficial even if it has a negative impact on demand in the economy - for example, through improving living standards of residents by widening their choices, or through increasing understanding of different cultures and nationalities, as well as by the direct and indirect impact of airport-related activities on jobs and value added in the country / region concerned.

· The value of exports transported by air is the same of the value of imports for the EU as a whole.

For Europe as a whole we therefore find that the overall demand-side economic catalytic impact of air transport has been to reduce net demand by 0.3% of GDP, as EU residents take advantage of the opportunities provided for foreign travel.

(ii) Supply-side economic catalytic effects
While the demand-side impacts of air services on tourism and trade can have important effects on employment and income in a region/country over a number of years, they will only lead to a sustained improvement in GDP if they are matched by an improvement in the supply-side performance of the economy.

Air transport has significant impacts on the supply-side performance of the European economy, with long-run implications for productivity and living standards. Our econometric research ? which is consistent with previous studies and survey evidence ? suggests the following:

(a) Business investment impacts
· The relatively fast growth of air transport usage has boosted business investment by around 0.7% per year in the EU over the last decade ? equivalent to just under one-third of the growth in European business investment over this period.

· If this faster investment growth were held in place, it would boost EU GDP by around 2.5% in the long run (next 10 years).

(b) Total factor productivity (TFP) impacts
· Total factor productivity is a measure of the efficiency with which labour and capital are combined to produce output. A 1% increase in total factor productivity would lead to a 1% increase in GDP given the same inputs in terms of employment and fixed capital.

· The increase in air transport usage over the last decade has facilitated an increase in TFP of 0.1% a year across the EU, as it has, for example, allowed firms access to bigger markets and exploit economies of scale, stimulated competition and increased international networking. This implies that increased air transport usage has raised the level of EU GDP by 1.3% over the last 10 years.

· There are other supply-side impacts through, for example, the labour supply that we are not able to quantify. But it should be noted that, our estimates of the impact of air services on TFP take account of possible adverse effects ? eg increased congestion, local overheating ? as well as positive effects on companies? efficiency etc.

For Europe as a whole we therefore find that the overall supply-side economic catalytic impact of air transport has been to raise both investment and total factor productivity significantly. The combined long-run effect is to increase the level of GDP by 3.8% each year, or 390 billion euros. That is more than twice the total value added by the machine tools sector in the EU (1.6% of GDP in 2001), or more than half of the value added by the motor vehicles and parts sector (7.1% of GDP in 2001).

These economic catalytic effects of European air transport should be seen as part of the total contribution that air transport makes to European economies ? including the direct and indirect effects on employment and output. However, it should be emphasised that the economic catalytic contribution of air transport to GDP is bigger than its combined direct, indirect and induced impact.

Publisher

Association for European Transport