Economics(PhD)

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Browsing Economics(PhD) by Subject "Ethiopian airlines"

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    Essays on Efficiency and Growth of Ethiopian Air Transport Industry
    (A.A.U, 2020-06) Tsegay, Kaleab; Professor Subal, Kumbhakar
    This dissertation consists of an introduction and four independent, though related, papers on the growth and performance determinants of Ethiopian air transport and the production efficiency, cost efficiency, and labor use efficiency of Ethiopian airports. This introduction highlights the concept of the dissertation and provides an overview of the aviation sector’s performance including the rationale for the study and the contribution that the four papers make to existing literature on air transport. The four stand-alone studies in this dissertation use different model specifications and estimations for estimating and ranking the performance of the airports. The differences in the airports’ performance are attributed to the objectives of the airports, data availability, and the structure and the model’s underlying assumptions. The aim of the independent studies is being published in academic journals in the field. The first paper uses a cost minimization or input oriented approach for analyzing the cost efficiency of Ethiopian airports using the panel data stochastic frontier approach. It uses the time-invariant fixed effects, time-variant true fixed effects, specifying and estimating the time variant and time invariant approaches in Kumbhakar et al. (2015) and Battese and Coelli’s (1995) models. The empirical findings show international airports have higher passenger volumes and also have lower cost efficiency compared to domestic airports. In other words, maximum cost efficiency was found at airports with low levels of services and facilities as compared to airports with better services and advanced facilities. The findings also show that airports having better infrastructure and airport specific facilities and services will continue to be inefficient compared to 2 those having lower levels of facilities and services. Hence, Ethiopian airports should introduce cost saving approaches based on reliable traffic forecasts. The second paper uses an output maximization or output oriented approach for analyzing the production efficiency of domestic and international Ethiopian airports using the stochastic frontier panel data approach for the period 2002-17. This study examines the technical efficiency of Ethiopian airports over time. It specifies Kumbhakar et al.’s (2014) maximum likelihood method for separating persistent time-invariant inefficiency and transitory time-varying inefficiency from unobservable individual effects. It also applies the fixed effects model and distance technical inefficiency using Battese and Coelli’s (1995) approach for a comparison. The findings indicate that most Ethiopian airports have relatively low technical efficiency which is required for developing competitive strategies that can attract more air traffic volumes and generate higher revenues. Hence, classic customer handling, policy, and incentive schemes should be introduced to increase passenger demand. Private and low-cost carriers should be encouraged to operate using the airports’ services. The third paper uses a factor demand approach and focuses on Ethiopian airports’ labor use efficiency by analyzing this using the panel data stochastic frontier input requirement function. It also specifies the Kumbhakar and Heshmati (1995) model and maximum likelihood estimation techniques of separating persistent time-invariant inefficiency and transitory time-varying inefficiency for estimating labor use efficiency of Ethiopian airports. The findings show that domestic airports are relatively better performing as compared to international airports. Similarly, most airports experience high persistent inefficiencies compared to transitory inefficiencies. This implies a need for taking lessons in the deployment of labor resources and introducing minimum labor requirement standards at all airports. The final paper examines the growth determinants of the Ethiopian air transport sector by testing the variables’ significance and the causality of the three separate but interdependent activity equations covering the period 1988-2018. Ethiopian Airlines’ passenger growth determinants, other airlines’ passenger growth determinants, and the determinants of air freight cargo growth. In this research, ordinary least squares, a seemingly unrelated regression estimation, and autoregressive distributed lag modelling approaches are applied to investigate the short-run and long-run causal 3 relationships between air transport growth and some selected macroeconomic variables. The major findings show that most variables are statistically significant both in the short-run and long-run. Similarly, their respective error correction models are also significant and negative as expected implying strong and significant causal relationships between the short-run and long-run models. The econometric results of some specific variables vary which is attributed to high dependency on imported goods and services, absence of alternative passenger air transport systems, and steadily growing aggregate demand for air transport. Hence, the government should pay due attention to stable macroeconomic growth and airlines should have long-run strategic planning for reducing the effects of any internal and external shocks to the economy.