Long-Range Growth: Economic Development in the Global Network of Air Links

University of Zurich, UBS International Center of Economics in Society, Working Paper No. 16

39 Pages Posted: 2 Dec 2016

See all articles by Filipe R. Campante

Filipe R. Campante

Harvard University - Harvard Kennedy School (HKS)

David Yanagizawa-Drott

University of Zurich

Multiple version iconThere are 3 versions of this paper

Date Written: November 2016

Abstract

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

Campante, Filipe R. and Yanagizawa-Drott, David, Long-Range Growth: Economic Development in the Global Network of Air Links (November 2016). University of Zurich, UBS International Center of Economics in Society, Working Paper No. 16, Available at SSRN: https://ssrn.com/abstract=2877690 or http://dx.doi.org/10.2139/ssrn.2877690

Filipe R. Campante (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

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David Yanagizawa-Drott

University of Zurich ( email )

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