Airline Traffic and Urban Economic Development

Abstract

This paper provides new evidence on the link between airline traffic and employment in US metropolitan areas. The evidence confirms the common view that good airline service is an important factor in urban economic development. Frequent service to a variety of destinations, reflected in a high level of passenger enplanements, facilitates easy face-to-face contact with businesses in other cities, attracting new firms to the metro area and stimulating employment at established enterprises. The empirical results show that a 10 per cent increase in passenger enplanements in a metro area leads approximately to a 1 per cent increase in employment in service-related industries. However, airline traffic has no effect on manufacturing and other goods-related employment, suggesting that air travel is less important for such firms than for service-related businesses. These estimates are generated controlling for reverse causality between employment and traffic. The results imply that expansion of Chicago's O'Hare airport would raise service-related employment in the Chicago metro area by 185 000 jobs (this impact assumes that expansion raises traffic by 50 per cent). Thus, the expansion of O'Hare airport represents a powerful economic development tool, as argued by its proponents.