Long-Range Growth: Economic Development in the Global Network of Air Links
HKS Faculty Research Working Paper Series 16-034
51 Pages Posted: 21 Sep 2016
Date Written: September 19, 2016
We study the impact of international long-distance flights on the global spatial allocation of economic activity. To identify causal effects, we exploit variation due to regulatory and technological constraints which give rise to a discontinuity in connectedness between cities at a distance of 6000 miles. We show that these air links have a positive effect on local economic activity, as captured by satellite measured night lights. To shed light on how air links shape economic outcomes, we first present evidence of positive externalities in the global network of air links: connections induce further connections. We then find that air links increase business links, showing that the movement of people fosters the movement of capital. In particular, this is driven mostly by capital flowing from high-income to middle income (but not low-income) countries. Taken together, our results suggest that increasing interconnectedness generates economic activity at the local level by inducing links between businesses, but also gives rise to increased spatial inequality locally, and potentially globally.
Keywords: Globalization, Air Travel, Connections, Economic Activity, Local Development, Cities, Business Links, FDI, Convergence, Spatial Inequality
JEL Classification: F15, F21, F23, F63, O11, O18, O19, O47, R11, R12, R40
Suggested Citation: Suggested Citation