Working Paper: NBER ID: w22653
Authors: Filipe Campante; David Yanagizawadrott
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: Air Links; Economic Development; Globalization; Spatial Inequality; Foreign Direct Investment
JEL Codes: F15; F21; F23; F63; O11; O18; O19; O47; R11; R12; R40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| air links (L93) | local economic activity (R11) |
| air links (L93) | night lights (Y60) |
| air links (L93) | further connections (Y50) |
| further connections (Y50) | positive externalities (D62) |
| air links (L93) | business links (M29) |
| air links (L93) | spatial inequality (R12) |
| local economic activity (R11) | growth of connected cities (O18) |
| connected cities (R12) | hinterlands (R11) |