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In section II, we give a brief overview of the different effects Private benefits of airports are reflected mainly by lower trans-
that an airport generates within its region, both negative and portation and travel costs for companies and individuals within
positive. In section III, we take a closer look at the spectrum the airport region. Lower transportation costs give access to
of approaches, presenting their backgrounds, their application in new markets, both product and labor markets. This can improve
practice and their merits as well as their potential weaknesses. the international division of labor, and hence increase compa-
Finally, section IV concludes this paper. nies’ productivity. Whereas private benefits accrue to users of
air transport, external benefits also accrue to non-users of the
II. The Role of Airports for the Regional Economy particular airport. The marketplace is generally well-suited for
Airports can have a significant impact on regions. There are absorbing benefits through market prices (e.g. ticket prices, land
positive as well as negative effects on airport users, regional prices), however, some benefits might remain outside the market
economy, adjacent communities and the environment. The fol- mechanism.3 Generally, airports are an important factor in at-
lowing figure (Figure 1: Social impacts of airports) structures tracting inward investment since they can offer quick and conve-
the various bundles of effects produced by airports. nient access to air services and goods to businesses. Surely, air-
ports are only one of a number of factors in locational investment
Private costs occur in the profit and loss statement of airport decisions, but a nearby airport with good services can at least
operators. They include the planning and construction costs of help to push the region on a shortlist of potential search areas. 4
capital projects as well as operating costs and can easily be de-
termined. It is more difficult to identify external costs, since III. Measuring the Regional Impact of Airports
these occur outside the market and also impact non-users. Exter- Input-Output Analysis
nal costs are mainly (but not limited to) environmental impacts Input-output analysis is probably the most common approach for
of airports, which can be divided into noise, emissions, water analyzing an airport’s impact on the regional economy, whether
pollution and use, waste and energy management, and impacts related to developing or expanding airports or to current airport
on wildlife, heritage and landscape.2 operations. Since the 1980’s, a multitude of studies have been
carried out using IOA .5
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Figure 1: Social Impacts of Airports
Input-output studies use a Keynesian demand model based on Using IOA for project appraisal and investment decisions has
input-output tables. They estimate the effects on value added, several shortcomings:
employment and income that result from economic activities
at the airport.6 IOA does not only take into account direct ef- Treatment of private costs: In input-output models, a rise in de-
fects that accrue from economic operation on the airport site, mand leads to more value added, employment and income for
but also indirect effects that follow from demand generated by the economy. As costs (e.g. runway and terminal construction
the enterprises at the airport for intermediate and capital goods and operation costs) are treated as demand, the effects the model
and induced effects, which are a consequence of spending by generates increase when costs increase. Therefore, the higher the
employees of companies at the airport or of producers of inter- inefficiency of an airport the higher the economic impact for the
mediate goods. regional economy will be.11
Evaluation of the Approach Treatment of external costs: It is undisputable that air transporta-
IOA can give qualified insights regarding the overall and sec- tion does not only generate benefits but also technological exter-
toral demand effects that an airport generates.7 Therefore, IOA nal costs, which are not incorporated into the marketplace. While
is a sound means for measuring the economic impact of airport not directly generated by the airport itself, these negative effects
infrastructure on regional value added, employment and income. can at least partially be attributed to its presence, as airport in-
Information on the sectoral distribution of the effects can pro- frastructure is an essential intermediate good for air traffic to and
vide valuable information to policymakers as to which parts of from a region.12 Moreover, airport expansion projects aim at in-
the local economy benefit the most from the economic activity creasing air traffic, which in turn increases external costs. While
at the airport. external costs are not incorporated into market prices, they are of
course relevant for policymakers, who aim at maximizing or im-
Data requirements for IOA can be fulfilled rather easily com- proving social welfare. IOA cannot consider external costs, as it
pared to other approaches. Information on employment, invest- is part of the national accounting systems, which do not account
ment and intermediate good demand can be obtained from the for these costs. Basing themselves on the results of input-output
companies at the airport. Since in most countries input-output analysis, policymakers might erroneously prefer a project that
tables are publicly provided, the approach can be applied rather has fractionally higher values according to IOA but much higher
easily and inexpensively; the results are easy to understand for environmental costs compared to a different project.
the public.8 There are efforts to harmonise the national account-
ing standards, which would allow more accurate comparisons of Treatment of private and external benefits: Air transportation has
results across countries. One might, however, get the impression various benefits for its users - such as travel time and cost sav-
that the relative ease of data collection and application of the ings and access to new markets - but also for non-users: Adjacent
approach likewise is one of its weaknesses: It tends to lead to communities might benefit from higher locational attractiveness,
an ubiquitous application of input-output analysis on issues it is giving the region a competitive advantage over other regions,
not suited for. This has lead to a general mistrust in the results of leading to higher economic growth and higher employment.
IOA, which is not justified. It is not the results of the IOA that IOA is able to partially incorporate benefits of air transporta-
gives reason for distrust but the suppression or neglect of the tion. Employment, value added and income at the airport site
model’s limitations.9 (direct effects) are results of users’ demand for products and ser-
vices at the airport. The demand from companies at the airport
Probably the most severe misuse of input-output analysis is its for capital and intermediate goods (generating indirect effects)
application to the evaluation of investment decisions, such as the is likewise attributable to users’ demand and benefit: Without
appraisal of pros and cons of runway enlargements or terminal passengers and freight forwarders benefiting from and therefore
extensions. At one of Europe’s busiest hubs, Frankfurt airport, using the airport, there would be no demand from companies at
for example, the decision to build a new, fourth runway was de- the airport site for intermediate or capital goods as there would
cisively influenced by an input-output analysis that predicted the be no economic activity at all at the airport. However, direct and
creation of 57,000 jobs if the new runway was built.10 indirect effects do not incorporate all benefits: Travel time and
2
cost savings are reflected by passenger or cargo revenues of the Evaluation of the Approach
airlines.13 IOA does not fully cater for these benefits, as it only Econometric macrostudies offer interesting insights into general
accounts for expenditures of the airlines at the airport (e.g. for relationships which are universally valid for the entire airport
ground-handling staff, fuel, office space) and not for revenues. infrastructure of particular countries. The results of such studies
Besides, effects on the regional economy are measured only as indicate elasticities, which show the variation of employment,
buyer-supplier relationships, in which the companies at the air- population growth or regional GDP against an increase in re-
port order goods and services from the supplier. Potential higher gional air traffic. Since the necessary data is easy to collect via
locational attractiveness or economic growth cannot be integrat- the respective statistical offices, the costs for such econometric
ed into the analysis. estimations are very low. Furthermore, econometric estimations
enable researchers to carry out a multitude of various different
Econometric Analysis analyses for a wide range of research questions.
In principle, econometric estimations are suitable for a broad
range of various research questions. Some studies employ Treatment of private and external benefits: Applied on the re-
econometrics in order to test negative impact of airports on the search question as to whether airports and air traffic produce
surrounding region.14 There are a number of econometric stud- benefits for regions, regression models provide useful informa-
ies on the positive impact of (transport) infrastructure in general tion. However, this instrument is of lesser use for the application
starting with the seminal papers of Mera (1973) and Aschauer on individual airports. Politicians, bureaucrats or airport man-
(1989).15 However, there are still only a few examples of the agers who commission airport studies usually require specific
use of regression analysis techniques for measuring the posi- estimations for the economic impact of their particular airports
tive influence of airports on the regional economy. Generally, or planned expansion projects. Some econometric studies try to
regression analyses observe the relationship between one depen- apply the estimated elasticities on individual airport projects as
dent and one (simple regression) or several (multiple regression) well.16 However, one should bear in mind that econometric esti-
independent variables. When examining the economic impact mations have a rather global character. With applying only uni-
of airports for regional economies, the dependent variable is versally valid coefficients for updating or predicting economic
supposed to represent a good indicator for economic prosperity. impacts of particular airports, one does not consider regional
Prosperity can be reflected by employment, population growth characteristics. Differences in productivity and wages between
or regional GDP. Most studies test several of these dependent different regions of one country are neglected. For instance Pur-
variables in consecutive analyses. Independent variables are cell (2007) estimates for St. Thomas Municipal Airport (located
chosen according to their influence on economic prosperity. in the Canadian Province of Ontario, close to Lake Erie) for the
Table 1 gives an overview on studies employing econometric year 2005 a total of 65.8 person years of direct, indirect and in-
approaches in order to quantify the economic impact of airports. duced employment and gross revenues of CAD 12 million.17 This
Beside Brueckner (1982), all studies have found highly signifi- estimate is carried out by means of an econometric model which
cant relationships between airport activity and economic perfor- is based on Benell / Prentice (1993). However, such an estimate
mance. cannot reach the accuracy of an IOA.18
3
Another shortcoming of regression analy- Figure 2: Use of CBA in Europe by Transport Mode in 2004
ses is that the direction of causality is often
not quite clear. Green (2006) states: “While
good airport service could lead to econom-
ic success, economic success could lead to
good airport service”.19 Some of the above-
mentioned studies try to solve this prob-
lem by employing the Granger causality
test20 or the 2SLS method which includes
the use of exogenous instruments in the
analysis. Since the correlation between re-
gional wealth and air traffic is based on in-
terdependency, the accuracy of elasticities
estimated with simple regression analysis
(OLS methods) instead of 2SLS methods
are arguable, since an upward bias of those
elasticities is possible.
4
Courtesy of Du Saar Photography © 2009 (www.dusaar.nl)
5
Federal Aviation Administration (1999), “Airport Benefit-Cost Robertson, J. A. W. (1995), “Airports and economic regeneration”,
Analysis Guidance”. Journal of Air Transport Management, vol. 2, no. 2, pp. 81-88.
Forsyth, P. (2006), “Estimating the Costs and Benefits of Regional Tomkins, J, Topham, N., Twomey, J. and Ward, R. (1998), “Noise
Airport Subsidies: A Computable General Equilibrium Approach”, versus Access: The Impact of an Airport in an Urban Property Mar-
paper presented at German Aviation Research Society workshop, ket”, Urban Studies, vol. 35, no. 2, pp. 243-258.
June 29 – July 1 2006, Amsterdam. Wollersheim, C. and von Blanckenburg, K. (2009), “External Ben-
Graham, A. (2001), “Managing Airports”, Oxford, 2001. efits of Airports”, forthcoming.
Granger, C. (1969), “Investigating causal relations by econometric
models and cross-spectral methods”, Econometrica, vol. 37, no. 2, Endnotes
pp. 424-438. 1. Less used approaches such as Computable General Equilibrium
Green, R. K. (2006), “Airports and Economic Development”, De- Models (see for instance Forsyth (2006)) or the adaption of the Con-
partment of Finance, School of Business, The George Washington tingent Valuation Methodology, which is used for the estimation of
University, Washington, D.C, 2006. catalytic effects (see Malina, Schwab, Wollersheim (2008)), will not
Heuer, K., Klophaus, R. and Schaper, T. (2005), “Regionalöko- be discussed.
nomische Auswirkungen des Flughafens Frankfurt-Hahn für den 2. See Graham (2001), p. 200 ff.
Betrachtungszeitraum 2003 – 2015”, Wissenschaftliche Forschun- 3. We will not focus on the distinction between technological and pe-
gsstudie im Auftrag der Flughafen Frankfurt-Hahn GmbH, Birken- cuniary externalities within the scope of this paper. Consequently,
feld. [“The regional impact of Frankfurt-Hahn airport in the years not all of the effects mentioned subsequently induce market failure.
2003 to 2015”] See Wollersheim / von Blanckenburg (2009) for details.
Jorge, J.-D. and de Rus, G. (2004), “Cost-benefit analysis of invest- 4. See Robertson (1995), p. 84.
ments in airport infrastructure: a practical approach”, Journal of Air 5. See e.g. Batey / Madden / Scholefield (1993) and Malina / Peltzer /
Transport Management, vol. 10, pp. 311-326. Wollersheim (2006) for details.
Klophaus, J. (2008), “The Impact of Additional Passengers on Air- 6. Some studies also take into account fiscal effects from tax payments
port Employment - The Case of German Airports“, Journal of Air- that are affected by the project. See e.g. Heuer / Klophaus / Schaper
port Management, vol. 2, pp. 265-274. (2005).
Lu, C. and Morrell, P. (2006), “Determination and applications of 7. See Pfähler (2001), who has developed guidelines for conducting
environmental costs at different sized airports – aircraft noise and valid input-output studies.
engine emissions”, Transportation, vol. 33, no. 1, pp. 45-61. 8. See Pfähler (2001), p. 11, Münzenmaier (2001), S. 95.
Macki, P. and Preston, J. (1998), “Twenty-one sources of error and 9. See Pfähler (2001), p. 13.
bias in transport infrastructure appraisal”, Transport Policy, vol. 5, 10. See Bulwien et al. (1999).
pp. 1-7. 11. See Niemeier (2001), p. 206.
Malina, R., Peltzer, S. and Wollersheim, C. (2006), “Die regional- 12. Local and regional external effects of air transportation would not
wirtschaftlichen Effekte des Dortmund Airport, Motor für Industrie, accrue, if there was no airport in the region. This does, however,
Handel, Dienstleistung und Beschäftigung“, hrsg. von der Industrie not apply for greenhouse gas emissions as a global phenomenon.
und Handelskammer zu Dortmund, Dortmund, [“The regional eco- Greenhouse gas emission will only be avoided, if the overall level of
nomic impact of Dortmund Airport”] air traffic decreases, that is, if the closure of an airport does not lead
Malina, R., Schwab, M. and Wollersheim, C. (2008), Using a con- to a 100 % substitution of traffic to another airport.
tingent-valuation approach for evaluating the benefits of airports for 13. See Jorge / de Rus (2004), p. 312.
regional economies, proceedings of the 12th Annual World Confer- 14. See e.g. Lu / Morrell (2006) or Tomkins et al. (1998).
ence of the Air Transport Research Society, July 6-10, 2008, Athens. 15. See Pfähler / Hofmann / Bönte (1996) and Bhatta / Drennan (2003)
Mera, K. (1973), “Regional production functions and Social Over- for a detailed review of the empirical literature.
head Capital: An analysis of the Japanese case”, Regional and Ur- 16. See Benell / Prentice (1993) or Brueckner (2003).
ban Economics, vol. 3, pp. 157-185. 17. See Purcell (2007).
Mishan, E.J. (1988), “Cost benefit analysis”, Boston, Sydney, Wel- 18. The author states that, compared to a survey-based IOA, the mod-
lington. el’s accuracy lies within a 5-10% range. However, another factor
Münzenmaier, W. (2001), “Political consultation with the help of that contributes to the inaccuracy of the estimation might be due
Input-Output Analysis - the example of Baden-Württemberg”, W. to the fact that the model is applied 14 years after its publication in
Pfähler (ed.), “Regional Input-Output Analysis”, Baden-Baden, pp. 1993. The fact that employment per enplaned passenger can change
89-107. over the time does not seem to be considered in this context. See
Nash. C. (1993), “Cost-benefit analysis of transport projects”, A. Klophaus (2008) for the change of direct employment per enplaned
Williams, F. Giardina (ed.), “Efficiency in the public sector, The passenger.
Theory and Practice of Cost-benefit analysis”, Cheltenham, pp. 83- 19. See Green (2006), p. 9.
105. 20. See Granger (1969).
Niemeier, H.-M. (2001), “On the use and abuse of Impact Analysis 21. See e.g. Lu / Morrell (2006) or Tomkins et al. (1998).
for airports: a critical view from the perspective of regional policy”, 22. The sample includes 24 member states of the European Union plus
W. Pfähler (ed.), “Regional Input-Output Analysis”, Baden-Baden, Switzerland.
pp. 201-220. 23. See figure 2.
Odgaard, T., Kelly, C. and Laird, J. (2005), “HEATCO Work Pack- 24. See Odgaard et al. (2005).
age 3: current practice in project appraisal in Europe,” Deliverable 25. The remarkably different treatment of airports in Germany is a result
1 / Volume 1 (main text). of a different allocation of compe-tences for federal and state author-
Pfähler, W., U. Hofmann and Bönte, W. (1996), “Does Extra Public ities. Whereas the federal government is responsible for major road,
Infrastructure Matter? An Appraisal of the Empirical Literature”, rail and inland waterway projects, the federal states are in charge
Finanzarchiv, vol. 53 pp. 68-112. over the airports. CBA is only compulsory on the federal level.
Pfähler, W. (2001), “Input-output analysis: A user’s guide and call 26. See Department for Transport (2009).
for standardization”, W. Pfähler (ed.), “Regional Input-Output 27. See European Commission (2002).
Analysis”, Baden-Baden, pp. 11-45. 28. See e.g. Adler (1987), Mishan (1988), Nash (1993), Mackie / Pres-
Purcel, J. (2007), St Thomas Municipal Airport – Economic Impact ton (1998).
Study, West Vancouver. 29. See e.g. European Commission (2002), Federal Aviation Adminis-
tration (1999), Bickel et al. (2006).
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