Liberalization of Air Transport Services and Passenger Traffic

Economists Roberta Piermartini and Linda Rousova's working paper on behalf of the World Trade Organization's Economic Research and Statistics Division offers empirical confirmation of what most of us already know: liberalization increases traffic volume.  See Liberalization of Air Transport Services and Passenger Traffic (Staff Working Paper ERSD-2008-06, Dec. 2008) (available here).  From the abstract:

Using a gravity-type model to explain bilateral passenger traffic, this paper estimates the impact of liberalizing air transport services on air passenger flows for a sample of 184 countries.  We find robust evidence of a positive and significant relationship between the volumes of traffic and the degree of liberalization of the aviation market.  An increase in the degree of liberalization from the 25th percentile to the 75th percentile increases traffic volumes between countries linked by a direct air service by approximately 30 per cent.  In particular, the removal of restrictions on the determination of prices and capacity, cabotage rights and the possibility for airlines other than the flag carrier of the foreign country to operate a service are found to be the most traffic-enhancing provisions of air services agreements.  The results are robust to the use of different measures of the degree of liberalization as well as the use of different estimation techniques.