Air Transportation and Regional Growth: Which Way Does the Causality Run?

While there is typically a strong correlation between air traffic and economic growth, the direction of causation between the two is not clear. To address the existence of causality in this paper we consider the nature of this relationship in different types of regions. The empirical analysis is based on European-level annual data from eighty-six regions and thirteen countries on air traffic and regional economic performance in the period 1991 to 2010. Granger noncausality analysis in a panel framework, which allows possible heterogeneity between regions, was used. The results suggest that the causality processes are homogenous from regional growth to air traffic. There is causality from air traffic to regional growth in peripheral regions, but this causality is less evident in core regions. Thus, air transportation plays a crucial role in boosting development in remote regions. There might, therefore, be a case for subsidizing local airports in these regions.