How Do the Aviation and Rail Sectors Contribute to the Wider Economy?



How Do the Aviation and Rail Sectors Contribute to the Wider Economy?

Authors

A Meaney, P Oxley, C Riley, M Shepherd, Oxera Consulting Ltd, UK; D Bishop, Airport Operators? Association, UK

Description

How do different modes of transport contribute to the economy? This paper presents a framework that can be used to assess the economic impact of a transport sector. As an example, the impact of policies on UK aviation and rail is considered.

Abstract

Considerable political, media and public scrutiny is often given to transport industries, with the focus tending towards their costs or negative impacts. This is true of both the rail and aviation sectors (albeit for different reasons). The rail sector is often analysed for its high levels of public subsidy, while the aviation sector is often criticised for its environmental effects. The impact that is less often analysed is the contribution that both of these sectors make to the national economy. This contribution deserves a more thorough assessment because it is a benefit that should be balanced against any negative impacts in transport appraisals or major policy decisions. Quantifying some of these benefits can allow decision makers to form better informed policy decisions for each sector.

This paper draws upon an independent assessment by Oxera of the contribution of aviation to the UK economy, commissioned by the Airport Operators Association (AOA, and includes the framework and key findings from that report while extending similar analysis to the rail industry.

The framework developed provides a step-by-step breakdown of the different mechanisms that make up the full impact of each transport sector?s economic contribution. These components are distinguished as the direct impact, the indirect (supply-side) impact and the wider effects.

The first and most obvious component is the direct impact of each transport industry. This is primarily measured by Gross Value Added (GVA), and is a concept that indicates the value of the outputs of an industry minus the value of the inputs. (It is possible to obtain these values from official national account data.) In addition to GVA, a value of the number of employees is also informative as it shows the impact on the labour market.

The second contribution is the indirect impact. Each industry does not operate in isolation; it is supported by a supply chain?by service providers from other industries. These services range from legal services, banking and finance, to other land transport and materials providers. This paper makes use of ?input?output? tables and the inverse Leontif matrix, in order to determine the precise cross-sectoral impact that the rail and aviation industries have.

The final distinct economic contribution that the framework examines are the wider impacts. These are the effect that each industry has on other parts of the national economy. In particular, it is the unique effect that the industry has that would not be replicated if the resources and employees deployed by the industry were relocated elsewhere in the economy.

For example, for aviation these impacts can occur through greater international investment and trade, while for rail these factors include decongestion and agglomeration. These are benefits that could not be (easily) replicated by an alternative industry.

Quantifying these wider impacts is complicated, particularly as many of them are inter-related. It is difficult to determine a valuation of the impact of removing a specific transport sector, and realistically these are never policy options. Importantly, however, the policy debate can still be influenced by examining specific changes in policy. The framework developed in this paper is most appropriate for assessing these more marginal changes. To give a specific example of how to do so, the impact of the 2009 increase in Air Passenger Duty (an aviation-specific departure tax) on aviation?s contribution is assessed, as well as a range of future potential aviation taxation and capacity scenarios

Social and environmental effects are not assessed by this framework, though clearly they should be taken into account by policy makers.

To summarise, this paper answers the following questions:

? How do the UK aviation and rail sectors contribute to the UK economy through GVA and employment?
? How does worker productivity in these sectors compare to the national average?
? What is the economic contribution of the supply chains of the UK rail and aviation industries? Which other industries are the most important in those supply chains?
? How should wider economic effects?impacts that facilitate productivity improvements?outside the sectors be assessed? How do the mechanisms that create these wider effects differ between both rail and aviation?
? What impact will recent and future changes in air passenger duty have on the economic contribution of aviation?

Publisher

Association for European Transport