Analysis of the Interaction between Air Transportation and Economic Growth: Ethiopian Perspective
No Thumbnail Available
Date
2021-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
The general purpose of this paper is to investigate the relationship between air transportation and Ethiopia’s economic performance. This study also aims to show the casual relationship and provides the short-term and long-term relationship between air transport demand and economic growth. In order to achieve these goals Ethiopian Airlines Group and World Bank data source used from 1991 to 2019. To achieve these goals the appropriate estimation methods (VECM, VAR, Granger causality test, and descriptive analysis) were used. Johansen's co-integration analysis shows that there is a co-integration vector between economic growth and air transport expansion, and the corresponding elasticity is positive. VECM results show that the fitting coefficient between economic growth and air traffic dynamics is approximately (𝐸𝐶𝑇 = -0.33). The outcomes of VECM evaluation additionally indicates that long-time period causality runs from air transport demand (passengers and cargo) to financial growth, and considering transport demand, a two-year delay seems reasonable. The empirical evidence obtained from VECM and the causality test (long-term, short-term, and Granger causality) shows that there is a unilateral causal relationship between the development of aviation (passenger and freight) to local economic growth. The results of this document have some political and commercial implications and may be important to Ethiopia’s national air transport will create conditions for better air transport services, which will have a major long-term impact on economic growth. Therefore, policy makers should be aware that this sector is income elastic and has a multiplier effect on economic growth.
Description
Keywords
Causality analysis, Cointegration, Air transport, Economic growth