Positive effects: what are they and can we measure them?

In this chapter, I will examine the benefits of aviation for regional development. For an economist, addressing this issue involves answering the following three questions. First, what is the nature of the benefits? Second, how can we measure them? And third, should the government intervene to enable those benefits where the market is unable to do so? The first question is a rather multi-faceted one: certainly, removing aviation activities from the economy would be like removing a vital organ from the body – the world would have to change fundamentally to adjust. If one takes this view, then thinking about the economic benefits of aviation activities becomes a rather pointless exercise, similar to trying to measure benefits of lungs or liver to an organism. Since the start of the pandemic, we have seen how devastating cessation of international air travel can be, especially, for those countries that rely heavily on inbound tourism to drive their economy.

When economists think about the nature of economic benefits, they usually talk about the incremental effects of aviation activity on the economy. Bringing a point-to-point low-cost carrier to an island airport will generate more tourist traffic, giving a boost to the island's economy. Adding a network carrier's service from a regional airport to a major hub will make it easier for local businesses to connect to the world, generating more business activity, and increasing both imports into and exports out of the region. Improved connectivity from a local airport will increase attractiveness and competitiveness of the region as a place to do business. These are just some ways aviation activities can benefit regional economy.

Whatever the mechanisms behind the positive economic effects of aviation, measuring them is a non-trivial data analysis exercise. We all know that correlation does not imply causation, but when trying to measure the impact of aviation on the economy from the data available, even understanding the direction of causality is not easy. Do businesses come to an area because it is well-connected to the world through a local airport, or does aviation activity grow because of the growth in the regional economy?