Airports and the Wealth of Cities
Airports are much more than places to catch planes, attend an in-transit business meeting, or do some duty-free shopping; they are among the largest investments a city and region make. Earlier I charted the geography of airport activity across U.S. metros. Today I take a close look at how airports affect the economic growth and development of cities and regions.
According to John Kasarda these include "time-sensitive manufacturing and distribution; hotel, entertainment, retail, convention, trade and exhibition complexes; and office buildings that house air-travel intensive executives and professionals. The close connection between airports and regional development has been noted in several studies. A careful statistical study by economist Richard Green finds associations between airport passengers and both metro population and employment growth, while controlling for other factors that would be expected to shape growth. A second study by economist Jan Brueckner also notes a close connection between airline passengers and regional employment growth, finding that a 10 percent increase in passengers in a metro generates a one percent increase in regional employment. It finds, however, that airports and airline service contribute more to knowledge and service-based businesses than industrial manufacturing. The study concludes that: “the evidence confirms the common view that good airline service is an important factor in urban economic development.”
Airports function anchor a new aerotropolis model of economic development, according to John Kasarda and Greg Lindsay, that promises to “shape business location and urban development in the 21st century as much as highways did in the 20th century, railroads in the 19th and seaports in the 18th.”
Airports move two kinds of things—goods or cargo and people. In fact, a good deal of the argument about airports and economic development has focused on moving things and the business and industries that grow up around that. But in today’s economy, the ability to move people who generate and share knowledge matters even more.
With the help of my Martin Prosperity Institute colleague Charlotta Mellander, I took a fresh look at the connection between airports and economic development. Mellander conducted a basic correlation analysis, comparing airport activity to key indicators of regional development – economic output, income and wages; high tech industry and levels of innovation; human capital levels and the concentration of knowledge, professional and creative class workforce. (These findings are part of a larger study which includes multivariate analysis). As always, it’s important to remember that the associations we uncovered do not prove causation; other factors that we haven’t considered might play an equal or greater role. They do, however, point the way to further lines of inquiry.
Airports have a bigger effect on economic development by moving people as opposed to cargo. Both the number of passengers and flights are related to economic output, wages, and incomes. However, we find little association between any of the above and cargo.
Airports are also closely associated with key characteristics of knowledge-based or post-industrial economies. Both the number of flights and passengers are correlated with the percent of adults that are college grads, the share of the workforce employed in knowledge-based, professional, and creative class jobs, and even more so with concentrations of high-tech industry. Again, we found little association between such factors and the amount of cargo that passes through metro airports.
The role of airports in moving people became even clearer when we examined airport activity on a per capita basis. The number of airport passengers per capita is associated with higher metro economic output, wages, and incomes, as well as with the share of college grads and even more so with high-tech industry concentration. Conversely, the number of flights per capita had no significant association with income, wages, or economic output and was negatively associated with high-tech industry, human capital, and the creative class. Cargo per capita was significantly associated with only one variable, economic output per capita.
Mellander then used multivariate analysis to try to sort out the effects of airport activity alongside other key factors on regional economic development. She first looked at what factors were associated with a metro having an airport. The size of population, naturally, was a key one, but two others mattered as well – the average temperature of a metro, and the extent of its artistic and culturally creative community. In other words, airports were more likely to exist in bigger, warmer and more creative metros.
Next she turned to the effects of having an airport on regional economic development. She used economic output per capita, the standard measure of regional productivity, as the dependent variable, and included airport activity alongside human capital (the share of college grads), the unemployment rate, high-tech industry and the shares of artistic and cultural creatives, among other factors in her analysis. She used passengers per capita as her measure of airport activity to examine the effect of people-oriented airport activity on regional productivity.
She found that such airport activity is significantly associated with regional wealth and productivity. She also found human capital levels, the unemployment rate and level of artistic and cultural creatives to be significantly associated with regional productivity, while metro size and high-tech industry are not. It appears that it is not size per se that affects regional productivity but the things that size may help metros garner – like airports, higher levels of human capital and artistic and cultural creatives. It is not moving cargo, but the capacity to move people that matters.
Our findings lend additional support to Kasarda and Lindsay's aerotropolis model of economic development. Airports play a substantial role on the economic growth and development of cities and regions. In today's knowledge economy, far and away, the most precious cargo they move is people.