Airports and Economic Development

Before the 18th Century, harbors mattered a lot. They allowed trade, and explain why the cities in the current Netherlands became rich, despite the relative lack of natural recourses. In the 19th Century, canals and railroads were important. More recently, highways have mattered a lot--Ed Glaeser has written on how highway spending helps explain differences in urban growth.

But airports may be what harbors once were. I have a recent paper that looks at differences in population and employment growth across metropolitan areas: education matters, climate matters, and airports matter, a lot.

Here is the paper's conclusion:

This paper sought to find a relationship between airport activity and economic development, and it found one. Passenger boardings per capita and passenger originations per capita in the nation’s largest metropolitan areas are powerful predictors of population growth and employment growth. This is the case after a number of controls are put in place, and survives after an attempt to control for simultaneity issues. Beyond statistical significance, the magnitude of the coefficient on boardings per capita indicates that the magnitude of the effect of passenger boardings on these two measures of economic development could be rather large. It might particularly suggest that where airports are constrained by capacity (such as they are in Chicago, Boston, New York and Los Angeles), adding to capacity might well have an important economic development impact. That said, these results do not suggest that every small city should run out and build a large airport.

Of course the results presented here are far from conclusive: they are, perhaps, among the first of their kind (this paper was written contemporaneously with Brueckner 2003), and are therefore subject to far more scrutiny. Nevertheless, their statistical significance is sufficiently strong that it survives a large variety of alternative specifications. The results are also consistent with the findings in Brueckner.

The policy implications of this finding are therefore quite important. The political economy of airports is very much a function of their governance structure. The cost (at least the perceived cost) of airports to members of a community is highly concentrated geographically, while the benefits tend to be diffused throughout the community. Airports are sometimes under the control of local units of government, such as city councils or county boards. When this is the case, representatives whose districts include an airport have a strong incentive to become members of the airport authority. Consequently, decisions about airports can be based on parochial interests, even if the total benefits of the airport to the economy exceed the cost. Should air traffic be a large determinant of economic success, it is entirely possible that the benefits of new or expanded airports exceed costs.

Yet we have observed that in many places (San Francisco, Boston, Milwaukee), interest groups have worked to inhibit runway expansion, while in other places (Chicago), local political squabbles have prevented any number of potentially reasonable plans for expanding airport capacity from going forward in a timely manner. All this suggests that airport policy might best be made regionally, rather than locally. Of course, the regional policy would have to include a scheme for compensating those injured by airport expansion. But if the regional benefits of airport development are large, the costs of fair compensation should be easy to finance.

The paper is available on the GW Web Site. http://www.gwu.edu/~business/research/workingpapers/Airport%20GW.pdf