Air-Transport and Macroeconomic Performance in Asian Countries: An Analysis

Abstract

It is well said that “transport is civilization”. Transport sector plays a pivotal role in social and economic life of a country. A properly established transport system with well-equipped infrastructure is considered an input in the production process. A proficient transport system contributes to the economic growth by snow-balling the area of division of labor and specialization, accelerating the movement of raw material from their production centers to the place of their usage; as a result, it also enables the trade of goods from their manufacturing center to consuming centers between countries. A usefulness of transportation is that it helps in maintaining balance between areas where there is a shortage and those with surplus by exporting goods from the areas where there is a surplus to those areas where there is a shortage of goods. It stimulates integration of markets all over the world by reducing distance between countries. In this manner, it increases the comparative advantage of economy in goods production, and thus, facilitates trade. Transportation plays a pivotal role in connecting markets and the people. Recently, the world saw the birth of global economy which brought the national markets of different countries closer andmerged into a single global market due to technological advancement in the global transportation. It is impossible to put an economy on the high growth trajectory with an inefficient transport system. Air-transport is one of the major modes of contemporary transportation besides road and sea transportation. It is also known as “Real World Wide Web”. Air-transport plays its role in many sectors which ultimately contribute towards the national income of an economy. According to the Air-Transport Action Group (ATAG) 2012, if air-transport was a country, it would rank 19th in the world in terms of GDP, generating about US$ 540 billion worth of products and services per year. From this we can infer that there is a substantial role of air-transport sector towards the service-sector and in the economic growth. Air-Transport Action Group (ATAG) 2012, further points out that over 56 million people were employed world-wide in airtransport and the related tourism in 2011. By 2026, it is forecasted that air-transport will contribute about US$ one trillion to the world GDP. Based on these facts, it can be argued that air-transport is a sector which is capable of generating employment, product and services, stimulating growth. Therefore, empirically investigating its impact on growth for different countries is a worth-while task. In this paper, the study of macroeconomic impact of this mode of transportation is undertaken. Across-country framework for analysis of relationship between demand for air-transport and economic growth is also constructed. The rationale for considering Asian countries is that the strongest air-travel markets are in Asia with India and China’s domestic markets growing at double the rates. Within Asia the international travel is also growing strong. The objective of the paper is to build limitations of existing empirical research. The paper examines the impact of air-transport on national income of Asian countries, while considering the concerns which were previously overlooked in the empirical research. The hypothesis is HA, where there exists a long-run causal relationship between air-transport and macroeconomic performance in Asian countries. Following Section I (Introduction), Section II deals with the review of literature available on air-transport and its role in macroeconomic performance. Section III presents the theoretical framework, while the methodology is developed in Section IV. Empirical analysis is examined in Section V, and finally dicussion on recommendations on air transport are presented in Section VI.