strategic transportation & tourism solutions
Economic Impacts of Aviation: Catalytic Impacts Dr. Michael W Tretheway Chief Economist, InterVISTAS Consulting Group ACED Conference 20 September 2010
InterVISTAS Consulting Group Washington DC, Vancouver, London, the Hague • 80 employees • 8 offices in US, Canada, Europe, Caribbean • Specialities •
Air Service Development
•
Forecasting, Economic and Regulatory Analysis
•
Privatisation & Finance
•
Security and Borders Facilitation
•
Climate Change Strategy and Inventories 1
World GDP versus Air Traffic 7 6
World GDP Passengers Cargo Tonnes
Index (1970=1)
5 4 3 2 1 0 1970
1974
1978
1982
1986
1990
1994
1998
Source – International Monetary Fund and International Civil Aviation Organization.
2002
2006
World GDP versus Air Traffic 12
Index (1970=1)
10
World GDP Revenue Passenger Kilometres Revenue Tonne Kilometres
8 6 4 2 0 1970
1974
1978
1982
1986
1990
1994
1998
Source – International Monetary Fund and International Civil Aviation Organization.
2002
2006
Economic Impacts of Aviation • Direct •
A strong economic sector in its own right
• Indirect •
Contributor to tourism ($700b industry)
•
Contributor to logistics industry •
35% of trade value moves by air
• Catalytic •
improved aviation connectivity increases national productivity
4
Aviation Enhances Productivity Ultimately, aviation enhances productivity of economies by • providing better access to markets • enhancing communications and interactions between and within business • providing access to a larger labour pool
5
Methodology • Methodology developed for Measuring impact of information & communications technology investment on national productivity and economic growth •
ICT accounts for 5.4% of global economy
•
ICT contributes 25% of productivity growth
• Analysis •
Substantial academic literature
•
Data: cross section of national productivity •
With ICT investment
•
Model considers capital deepening
6
Methodology for ICT Studies • Analysis •
Substantial academic literature
•
Data: cross section of national productivity •
Labour productivity •
Capital deepening ICT Investment is a factor in capital deepening
•
Labour quality
•
TFP growth
•
Also analyse TFP growth and output growth
•
Test for causality (Granger type tests)
7
Methodology for Aviation Study •
•
Statistical regression analysis •
48 countries
•
9 years
Dependent variable (GDP per labour hour) •
•
Labour productivity is ultimately the source of standards of living
Independent variables •
Aviation connectivity index (supplied by IATA)
•
R&D spending as % GDP
•
Education spending as %GDP
•
Gross Fixed Capital Formation per worker
•
National fixed effect 8
Labour Productivity vs. Connectivity 60 North America and Western Europe Emerging Europe Developed Asia
50
Labour Productivity - GDP/Hour
Transitioning Asia and South America Developing Asia and Africa
40
30
20
10 Malta, Cyprus, Hong Kong, Singapore
0 0.0
0.2
0.4
0.6
0.8
1.0
1.2
Connectivity per $Billion of GDP
1.4
1.6
1.8 9
Labour Productivity vs. Connectivity North America and Western Europe
60
Excludes Malta, Cyprus, Singapore, Hong Kong
Emerging Europe Developed Asia Transitioning Asia and South America
50
Labour Productivity - GDP/Hour
Developing Asia and Africa
40
30
20
10
0 0.0
0.1
0.2
0.3
0.4
Connectivity per $Billion of GDP
0.5
0.6
0.7 10
Key Result • 10% increase in aviation connectivity per $GDP •
increases labour productivity by 0.07% •
Statistically significant
• Context for the ‘small’ number •
Poland •
Connectivity index increased 27%
•
E.g., Flights to UK increased from 58/week to 250 •
•
Cumulative increase in productivity: 0.19% •
•
Seats from 7,000 to 40,000
(us$600mn)
Impact on UK was $45mn 11
Key Results • Aviation Impact is smaller than ICT •
ICT investment is one of the largest drivers of economic growth and productivity
• But aviation impact is still strong and cumulative •
Sustained improved aviation connectivity drives •
Higher exports
•
Higher tourism (and the cash from tourism)
•
Anecdotal evidence suggests it drives higher export prices •
Higher shipment reliability or faster delivery time increases logistics value
12
Causality • Does aviation enable productivity and economic growth? •
Or is aviation driven by productivity and economic growth?
• ICT Sector •
Unambiguous causality: ICT investment drives growth
• Aviation •
Some authors find causality of aviation to growth/prod
•
We obtained inconclusive results •
Cannot establish that av connectivity causes productivity
•
But cannot establish the opposite
13
Causality • Does aviation enable productivity and economic growth? • Aviation •
Some authors find causality of aviation to growth/prod
•
We obtained inconclusive results
•
•
Cannot establish that aviation connectivity causes productivity
•
But cannot establish the opposite (growth drives aviation)
We find the ambiguity plausible •
Aviation clearly responds to economic growth
•
But improved connectivity enhances productivity and enables market access and growth
14
Economic Rate of Return Vancouver (YVR) example • Airport investment:
$ 506mn
• Aircraft capacity investment: $1,280mn • Air navigation investment:
$
19mn
• Total investment:
$1,805mn
• YVR Connectivity increased 25% •
Note that pax increased 34%
• RoR: 19.3% 15
Other RoR Examples
16
Copy of Study • IATA.org •
Economics •
Aviation Economic benefits
17
strategic transportation & tourism solutions
Thank You www.InterVISTAS.com