The Economic Effects of Regional Airport Expansion

A Service of

Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics

Breidenbach, Philipp

Working Paper Ready for Take-off? The Economic Effects of Regional Airport Expansion

Ruhr Economic Papers, No. 549

Provided in Cooperation with: RWI – Leibniz-Institut für Wirtschaftsforschung, Essen

Suggested Citation: Breidenbach, Philipp (2015) : Ready for Take-off? The Economic Effects of Regional Airport Expansion, Ruhr Economic Papers, No. 549, ISBN 978-3-86788-627-7, Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI), Essen, http://dx.doi.org/10.4419/86788627

This Version is available at: http://hdl.handle.net/10419/110340

Standard-Nutzungsbedingungen: Terms of use:

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes.

Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu RUHR ECONOMIC PAPERS

Philipp Breidenbach

Ready for Take-off ? The Economic Eff ects of Regional Airport Expansion

#549 Imprint

Ruhr Economic Papers Published by Ruhr-Universität Bochum (RUB), Department of Economics Universitätsstr. 150, 44801 Bochum, Germany Technische Universität Dortmund, Department of Economic and Social Sciences Vogelpothsweg 87, 44227 Dortmund, Germany Universität Duisburg-Essen, Department of Economics Universitätsstr. 12, 45117 Essen, Germany Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) Hohenzollernstr. 1-3, 45128 Essen, Germany

Editors Prof. Dr. Thomas K. Bauer RUB, Department of Economics, Empirical Economics Phone: +49 (0) 234/3 22 83 41, e-mail: [email protected] Prof. Dr. Wolfgang Leininger Technische Universität Dortmund, Department of Economic and Social Sciences Economics – Microeconomics Phone: +49 (0) 231/7 55-3297, e-mail: [email protected] Prof. Dr. Volker Clausen University of Duisburg-Essen, Department of Economics International Economics Phone: +49 (0) 201/1 83-3655, e-mail: [email protected] Prof. Dr. Roland Döhrn, Prof. Dr. Manuel Frondel, Prof. Dr. Jochen Kluve RWI, Phone: +49 (0) 201/81 49-213, e-mail: [email protected]

Editorial Office Sabine Weiler RWI, Phone: +49 (0) 201/81 49-213, e-mail: [email protected]

Ruhr Economic Papers #549 Responsible Editor: Roland Döhrn All rights reserved. Bochum, Dortmund, Duisburg, Essen, Germany, 2015 ISSN 1864-4872 (online) – ISBN 978-3-86788-627-7 The working papers published in the Series constitute work in progress circulated to stimulate discussion and critical comments. Views expressed represent exclusively the authors’ own opinions and do not necessarily reflect those of the editors. Ruhr Economic Papers #549

Philipp Breidenbach

Ready for Take-off? The Economic Effects of Regional Airport Expansion Bibliografische Informationen der Deutschen Nationalbibliothek

Die Deutsche Bibliothek verzeichnet diese Publikation in der deutschen National bibliografie; detaillierte bibliografische Daten sind im Internet über: http://dnb.d-nb.de abrufbar.

http://dx.doi.org/10.4419/86788627 ISSN 1864-4872 (online) ISBN 978-3-86788-627-7 Philipp Breidenbach1 Ready for Take-off? The Economic Effects of Regional Airport Expansion

Abstract

This paper analyzes whether the expansion of regional airports in Germany caused positive spillover effects on the surrounding economies, exploiting the deregulation of the European aviation market as a quasi-experiment. Such potential spillovers are often used as an argument for the substantial annual subsidies to airports. Previous evaluations often suffer from the problem of reverse causality, since investment decisions are based on the economic conditions of the region. By contrast, the aviation deregulation under the Single European Market-initiative provides an exogenous incentive for investing in the expansion of existing regional airports. A difference- in-differences approach is used to estimate the causal effects of this expansion on regional growth. The results are sobering, though, as there is no evidence for any positive spillover effects.

JEL Classification: R51, R42, H54

Keywords: Infrastructure investment; regional growth; airport effects

April 2015

1 RWI and RUB – I am grateful to Thomas K. Bauer, Roland Döhrn, Corinna Hentschker, Michael Kind, Alfredo Paloyo, Christoph M. Schmidt, Torsten Schmidt and Lina Zwick for valuable comments that helped to improve this manuscript. – All correspondence to: Philipp Breidenbach, RWI, Hohenzollernstr. 1-3, 45128 Essen, Germany, e-mail: [email protected] 1. Introduction

Duringthepastdecades,Germanregionalairportshaveexpandedtoaremarkableextent. RegionalpolicymakersinvestedmillionsofEurosinairportfacilities,aimingtoascertainthat thosefulfilltherequirementsofmodernairportsinaneraofarapidlygrowingaviationmarͲ ket.Contrarytothoseambitiousexpectations,todaynearlyallGermanregionalairportsdeͲ pendonsubstantialsubsidiestocovertheirannuallosses.SincetheEuropeanUniondecided thatthesesubsidiesviolateEuropeancompetitionlaw,itwillbeprohibitedafter2024touse themtocoveroperationallosses.Theselegalrequirementswillcauseexistentialproblemsfor anumberoftheseregionalairports.

Opponentsofthesubsidiesfeelvindicatedbythisdecision,sinceintheirassessmentreͲ gionalairportswillneverfindtheirnichebetweentheestablishedlargeairportsandwillnever reachprofitability.Proponentsoftheairportsarguethatthenarrowfocusonthedirectlosses failstorecognizetheirimportanceforregionaldevelopment.Theyemphasizepositivespillover effects for the surrounding industry, alleging that service industries and highͲtech branches particularlybenefitfromairportproximity(Sheard,2014,Brueckner,2003andButton/Taylor, 2000).Theargumentofstrongemploymenteffectsisusedtojustifythecontinuedoperation oftheseairports(Robertson,1995).

Itisdifficulttoanalyzetheseairporteffectsempirically,sincetypicallytheexpansionofreͲ gionalairportsistheoutcomeofeconomicandpoliticaldeliberationsinarealͲworldcontext, andnottheresultofananalyticalexperiment.Therefore,thequestionwhatcounterfactual development an airport region would have realized without the expansion cannot be anͲ sweredwithease.Onthecontrary,asthemanyattemptsattheeconometricevaluationofthe (regional) growth effects of infrastructure investments demonstrates (e.g. Aschauer,1989), theproblemsofreversecausalityandunobserved(regional)heterogeneityarealmostubiquiͲ tous(e.g.Mukkala/Tervo,2013,Buttonetal.2010andGreen,2007).

ThispaperexploitsanabruptchangeintheregulationofEuropeanaviationthatcanbeinͲ terpretedas aquasiͲexperimenttoovercome this difficulty.Specifically, thederegulationof theEuropeanaviationmarketin1997ledtoasubstantiallyredesignedaviationmarket(GraͲ ham,1995),providingaparticularlystrongincentivetoexpandGermanregionalairports.DeͲ signedtostrengthencompetitionontheairlinemarket,thisreformcausedanincreasingdeͲ mandfortakeͲoffandlandingslotsatairports.Establishedinternationalairportswerenotable not serve this increasing demand and, consequently, more airlines turned to operate from regionalairports.

Contrarytoinvestmentsdrivenbypositiveregionaldevelopments,thisreformthusledto investments which were set by exogenous changes in the structure of the aviation market (Graham, 2010, Barrett, 2000) and can therefore be regarded as a (quasiͲ)experiment. The paperdocumentsthatseveralairportsindeedinvestedextensivelytopreparetheirregional airportsfortheneedsofmodernandinternationalairlinesandpassengers.Furthermore,the location of German airports is closely linked to German military history since most of them

Ͷ wereconvertedfrommilitarytocivilianuseinthepast(Behnen,2004).Theiroriginallocation followedmilitarystrategiesinsteadofeconomicreasoning(Cidell,2003).Thesecircumstances facilitate an analysis of exogenous airport expansions on the basis of a differenceͲinͲ differencesͲapproach(DiD)whichovercomesregionalheterogeneityproblems.

Tothebestofmyknowledge,thisisthefirstpaperscrutinizingtherecentlydiscussedefͲ fectofregionalairportsexpansionsusinganexogenouseventasidentificationstrategy.2The resultsaresobering.Theestimationsstartwiththeapplicationofabasicmodel,ignoringany potentialendogeneityproblems,whichcomparesprosperitylevelsinregionswithandwithout airports. Such a preliminary approach indeed suggest airport induced regional prosperity. However,whenendogeneityproblemsaretakenintoaccountbyexploitingtheEuropeandeͲ regulationof1997,thiseffectvanishes.Thisresultisconfirmedbyvariousrobustnesschecks. There is simply no evidence that spillovers spreading out from such expansions of regional airportscouldjustifytheiroverwhelmingsubsidization.

Theremainderofthepaperisorganizedasfollows.Section2summarizestheexistingliterͲ ature,emphasizingendogeneityissuesandtheinstitutionalsettingsofthederegulation.SecͲ tion3describesthedatasetandoutlinestheDiD.Theresultsandvariousrobustnesschecks arepresentedinsection4,and,finally,section5concludes.

2. EUaviationmarketreformassourceofexogenousvariation

2.1. Existingliteratureandconceptualchallenges

ProponentsofregionalairportsarguethatairportsactasadrivingforceofregionaldevelͲ opment, because airports tend to increase income and employment in the local economy (ELFAA,2004).Theytypicallyfocusonthreetransmissionchannels(seeButton,2010forfurͲ thersubdivisions):(i)directeffects,realizedthroughemploymentandinvestmentsattheairͲ port,(ii)indirecteffects,inthechainofsuppliersofgoodsandservicesrelatedtotheairport, and(iii)induced effects whichcomprisethesurplusofemploymentthroughspendingofdiͲ rectlyandindirectlyemployedindividuals.Besidethesethreechannels,airportsaresupposed tohaveacatalyticeffectbyimprovingproductivityandattractingeconomicandtouristicactivͲ ities(e.g.EUCommitteeoftheRegions,2004,Cezanne/Mayer,2003).

However,obtainingempiricalevidenceforsuchairporteffectsisachallengingtask.ArguaͲ bly,thesimplestmethodforexaminingwhethertheexistenceofanairportaffectsgrowthin the surrounding region – a direct comparison of growth between airportͲ and nonͲairportͲ regions–willleadtobiasedestimates,duetoomittedregionalheterogeneity.Eventhough onemightbeabletocontrolforawiderangeofobservablevariables,thisidentificationstratͲ egywouldstillbepronetosufferingfromunobservableheterogeneity,inparticularembodied insuchregionalpreͲconditionswhicharelikelytobecorrelatedwiththeexistenceofanairͲ

2TheUSaviationderegulationact(1978)hasbeenexploitedasexogenousgivenchangesofairservices(BloninͲ gen/Cristea(2012)butasshownbelow,thisreformdidnotmarkcomparablechangesforregionalairports.

ͷ port.Sincethelocationofanairportisnotrandom,theremightbehigherprobabilityforthe erectionofanairportinaprosperingregion.Inthiscontext,theapplicationoffixedeffects estimationsinpaneldataframeworks(Islam,1995)isoflittlehelpsincetheexistenceofan airportisafixedeffectitself.

Focusingonairportactivities,suchasflights,passengersorcargodevelopment(Floridaet al.,2012)helpstointroducefurthervariationinthedataset.However,aslongasincreased activities do nothavean experimentalexogenous character,itisnotpossibletodistinguish whetherimprovingregionalconditionsinfluenceairportactivityasfoundbyGoetz(1992)and Dobruszkesetal.(2011)orviceversaassuggestedbytheairportproponents.Specifically,this problemoccursiffutureregionaldevelopmentisanticipatedandairportexpansionsarebased upon it. In this case, time series analyzes, e.g., provided by Green (2007), Mukkala/Tervo (2013)orButton/Yuan(2013)cannothelptoidentifyaleadingandafollowingprocess.3

Morepromisingidentificationstrategiescanbederivedfromexogenousevents.Brueckner (2003)andSheard(2014)4,forinstance,applytheconceptofinstrumentalvariablesintheir analyses.However,findingexogenouseventsorproperinstrumentswhichareabletopredict airport size but do not correlate with regional circumstances is a challenging task. BloningͲ en/Cristea(2012)considertheUS“AviationDeregulationact”5in1978whichwasendorsedto promotecompetitionintheaviationmarketasanexogenousevent.ActingundermarketpresͲ sureafterthereform,airlinesfocusedtheiractivitiesonthecentralairportssincesubsidiesfor peripheralconnectionswerecut.Theseshiftsinitiatedremarkableincreasesanddecreasesin the various airports’ activities (Burghouwt/Hakfoort, 2001), exogenous from the respective regionaldevelopment.Basedonthederegulationact,Bloningen/Cristea(2012)observethat increasingairportactivitiesaffectpopulationgrowth,percapitaincomeandemploymentposiͲ tively.

Although, their paper offers a promising methodological approach for the evaluation of generalairporteffectsthesetupislessrelevantfortheparticularexaminationofregionalairͲ porteffects.Theirstudyisrestrictedtotheexaminationofexogenouslyinducedgrowthofbig airportsincentralmetropolitanareas.Bydefinition,regionalairports(inthescopeofthispaͲ per) are rather small and they are located in less central areas. Therefore, effects obtained

3 Beside this, the applied Granger causality tests do only give a hint for potential economic causality (MukkaͲ la/Tervo,2013). 4Sheard(2014)exploitstheUS1944NationalAirportPlan,whichmarksanexogenouscomponentofthesizeof today’sairportswithoutbeingdirectlyinfluencedbythelaterdevelopmentoftheUScities. 5SincethepreͲreformaviationmarketintheUSdidnotreallyholdasanexampleforanopenmarketbutrather offeredahighdegreeofgovernmentalregulations,thederegulationactledtosubstantialshiftsinthemarketstrucͲ ture. Themarket situation wasdescribed by obstacles such asperipheral connections with higher governmental subsidiesthanattainedticketturnaroundsontheonehandandother'hotconnections'whereonlyalimitednumͲ ber of flights were allowed although there was a demand for much more flights on the other hand (BloningͲ en/Cristea,2012).Sincethissetupwasnotsustainablefortherapiddevelopmentoftheaviation,USgovernment passedaradicalreformofthesystemfor1978.SeeBloningen/Cristea(2012)foradetaileddescriptionofthisreͲ form.

͸ fromtheUSderegulationactcannotbetranslatedtotheexpansionofregionalairportsand thegrowtheffectsofthesurroundingregions.

2.2. EUaviationmarketreform

EncouragedbytheapparentsuccessofmarketderegulationsintheUS,in1983theEuroͲ peanCommissionstartedaderegulationinitiative,theSingleEuropeanAviationMarket(GraͲ ham,1997).ThepostͲreformperiodintheUSdemonstratedhowenhancedcompetitioncould leadtoanincreaseofsuppliersandflightsand,decreasingprices.ThederegulationoftheEuͲ ropeanmarketwassplitintothreeseparatesteps.Thefirsttwostepswereimplementedin 1988and1990(Graham,1995)andwerecharacterizedbyrathersmallchangessuchasthe permissionofbilateralintraͲEUagreements,thevalidityofcompetitionrulesfortheaviation andimplementationofthreeboundedfarezoneswhichallowedticketstobesuppliedbelow thestandardminimumfares(Schenk2004:95ff).6

Substantialchangesinthestructurewereinitiatedbythethirdstep(Graham,1997).This included the harmonization of the airline licensing processes, entire liberalization of ticket faresandtheabolitionofcapacityregulationsbetweenmemberstates.TheinvolvedsuspenͲ sionofallcabotageͲrestrictions7openedthemarketforarangeofnewairlines(Schenk2004: 98).ThesetrendschangedthemarketdramaticallysinceasubstantialnumberofairlinesenͲ tered the German market as further competitors, leading to an increased number of flights (see Thompson, 2002 for France). Nevertheless, slots (for departures and arrivals), ground operationservicesandbookingsystemsrepresentedabottleneckfortheoperationofincreasͲ ingtraffic.Nationalcarriersenjoyedgrandfatheringrightsfortheslotsandserviceswithout convincing“useitorloseit”rules(Schenk,2004).Thus,theappropriateaccessofnewcompetͲ itorstotheestablishedairportswashinderedandtheyhadtodiverttheirbusinesstoregional airports.

TheincreasednumberofcompetitorsandtheshortageofslotsatestablishedairportsproͲ vided strong incentives to regional policy makers to engage into airport expansion. Graham (1997) documents substantial benefits for regional airports and for the newly emerging reͲ gional airlines.8 Furthermore, the reform incentivized regional policy makers to expand the airportsrightin1997whennewairlinesenteredthemarketandincreasedthedemandforthe services of regional airports to conduct their operations. Thus, the reform forms a (quasiͲ )experiment,sincethetimingoftheexpansionswasdeterminedbylegislation,notbyeconomͲ icconsiderations.Germanyimplementedtheregulationaslateaspossibleinthebeginningof 1997,foryearsafteritpassedEuropeanCouncilin1993.ThislongperiodensuresthatplanͲ nershadenoughtimetopreparetheairportsfortheincreasingdemandforservices.MoreoͲ

6SeeGraham(1995/1997)fordetaileddescriptionofthefirsttworeformstepsandSchenk(2004)fortheirconͲ creteimplementationintheGermancase. 7CabotagerestrictionsinterdicttheprovisionofanationalroutebynonͲdomesticairlines.Oninternationalroutes onlythedomesticairlinesfromoneoftheconnectedcountriesisallowedtoprovidetheroute. 8Section3providesevidenceforactualinvestmentsatGermanregionalairportsinthistime.

͹ ver,preͲreformadjustmentoftheairͲservices(Ashenfelter’sDipproblem,Ashenfelter1978) couldnotoccursincetherestrictiveregulationswerestillintact.

Thescopeofthereformstrengthensitsinterpretationasanexogenouseventwithrespect to regional development. The European Commission intended to intensify competition beͲ tweenairlines(Graham,1998),whiletheincentivesforregionalairportexpansionswereonly sideeffectsofthereform.Thiscontrastswithregionalpolicymeasureswhicharespecifically designedtocompensatefordisadvantagesofthetargetedregions.AsBehnen(2004)points out,thereformdidnotonlycausearevolutionintheskybut,especiallyinGermany,alsoon theground.

Moreover, the initial location of German regional airports is also quite unrelated to the economiccircumstancessurroundingthem,sincemostofthetoday’sregionalairportshave servedasmilitarybasesinsomestagesoftheirexistence,beforetheywereconvertedinto civilianuse(Behnen,2004).Therefore,theirlocationwasnotdrivenbytheeconomicneedsof aregionorfavorableeconomicpreͲconditions(Cidell,2003),butwasratherbasedonmilitary strategiesandtheassociateddistributionoftheairforce.

Takentogether,themilitarybackgroundoftheinitiallocationsofregionalairports,theenͲ compassingscopeofthereformwhichdidnotintendtosupporttheregionalairports,andthe exogenousimpetusleadingtotheinvestmentsintoregionalairportexpansionformthreearͲ gumentswhichfacilitatetheexaminationofthecausaleffectsofairportexpansionsonregionͲ alprosperity.

3.DataandIdentificationStrategy

TheDiDapproachprovidesasoundidentificationstrategyfortheevaluationofthepotenͲ tialregionalgrowtheffectswhichmighthavebeeninducedbythederegulationoftheaviation market.Sincethedataset9containsannualinformationonGermancounties(NUTS3level)for theperiodfrom1991to2008,thepreͲ1997yearsserveaspreͲtreatmentperiodandthelatter astreatmentperiod.Thedemarcationintotreatmentandcontrolregionsismorechallenging. Obviously,thoseregionswitharegionalairportareregardedasthetreatmentgroup.Asthe researchquestionfocussesontheeffectsforregionalairportsanddetailedreactionsofestabͲ lished(international)airportsonthederegulationremainunclear,suchregionswithinternaͲ tionalairportsareomittedintheevaluation.10

Forthispurpose,thedistinctionbetweeninternationalandregionalairportshastobedeͲ fined.ThemaindefinitionofregionalairportsinthispaperreliesonthepreͲreformpassenger figuresprovidedbytheGermanAirportAssociation(ADV).Allthoseairportswithlessthanone millionpassengersin1996areincludedinthetreatmentgroupasregionalairports.ThisarbiͲ

9EconomicvariablesaretakenfromtheFederalInstituteforResearchonBuilding,UrbanAffairsandSpatialDeͲ velopmentBBR(2009)andBBR(2011). 10 Possiblytheywerealsopositivelyaffectedbythereformandgainedhigherefficiencyoftheirtraffic.

ͺ trarydefinitionisextensivelytestedintherobustnesscheckswhichcontainvaryingthresholds from0.5millionto5millionpassengersperyear.Lesspromisingdistinctionsaretheairports’ legalpermissions(whicharesubdividedintointernationalandregionalpermissions)11orthe categorization of its members provided by the ADV itself (which suffers from selfͲselection problems).12GermancountieswithoutaregionaloraninternationalairportserveastheconͲ trolgroup.

ThegrowthofGDPperlaborforce(GDPpl)isthemostpromisingindicatorwhichcancapͲ turetherangeofassumedspilloversfromregionalairportstoregionalprosperity.Therefore, thegrowthofnominalGDPperlaborforceisusedasthemainoutcomevariable.13Sincethe GDPperlaborforcemayalsohavesomeminorshortcomings14furtherestimationsintheroͲ bustnesschecksareappliedwiththegrowthoftotalGDP,GDPpercapitaandemploymentas dependentvariables.

In contrast to the majority of airport evaluations which exploit terms of air services (Allroggen/Malina,2014),thispaperfocussesonthepureexistenceofinfrastructurecaptured inacrosssectionaltreatmentdummy(ai)turning1iftheregionhasaregionalairportand0 otherwise.Thetimedummy(tt)indicatesthepostͲtreatmenteraandtheirinteraction(DiDit) marksthevariableofinterest,theDiDindicator.StartingwithapureDiDasfirstestimation,a varyingsetofcontrols(xkit)issubsequentlyincludedtoprovideanindicationoftherobustness oftheestimates.

Anincreasingsetofcontrolvariablescanaccountforregionalheterogeneitywilltendto improvetheprecisionoftheestimates.However,especiallyinthecontextofregionaleconomͲ ics,theinclusionofcontrolsisproblematicastheymightthemselvesbeanoutcomeofthe treatment(Angrist/Pischke(2008)15,Beckeretal.2014).Inthecontextofairportexpansions this is relevant for, e.g., regional investments which might be increased by the expansions. Developmentsofthese“badcontrols”whicharedrivenbythetreatmentmaybiastheestiͲ matedeffectofthetreatmentontheoutcomevariable,duetothecorrelationbetweenthe badcontrolandtheoutcomevariable.

Thelaggedlevelofpopulation,populationdensityandemploymentareincludedasconͲ trols.Furthermore,thelaggedlevelofthelefthandsidevariable,thelevelofGDPperlabor force,isincluded.Thisisstandardformodelsbasedonneoclassicaltheorybutposesproblems

11 However, the offeredflight destinations do not justify this distinction. International flights arealso provided from those airports which are legally defined as regional airports. See destinations of, e.g., DortmundͲWickede (http://www.dortmundͲairport.com/f2a0c5cf806929ea/passengersͲvisitors) 12Therobustnesschecksalsoincludeestimationsdefiningthethelegallydefinedregionalairportsastreatment group. 13GDPcanonlybeprovidedoncurrentpricelevelsincethereisnoinformationonpriceindicesforthedeflation onthechosenlevelofregionalentities(Destatis,2015) 14 Underthestrictassumptionofafixedcapitalstock,theGDPperlaborforcemaydecreasebytheincreaseof employment. 15Angrist/Pischke(2008)denotethosecontrolvariablesas“badcontrols”.

ͻ regardingitsimplicitdynamiccomponent.Sincetheoutcome(gyi,t=ln(yi,t)Ͳln(yi,tͲ1))correlates withthemodel’serrorterm(ߝit),theregressor(yi,tͲ1)alsocorrelateswiththeerrorterm,leadͲ ing to biased estimates (see Nickell 1981 or Baltagi2008 for an overview). As Bruno (2005) shows,thedynamiccorrectedfixedeffectestimatorbasedonaninitialBlundell/Bond(1998) estimationprovidessatisfactoryresultsforrathershortsamplesperiods.Resultsbasedonthis estimationmethodarepresentedintheappendix.

Theestimationsarebasedonthefollowingmodel.

K gyit,1 G a iGG 2 t t 3 DiD it E 1ln( y it ,1 ) ¦ E k ln( x it ,1,, k ) H it (1) k 2 wherei=1,…,NisthecrossͲsectionalandt=1,…,Tisthetimedimension,ɴkandɷ1,ɷ2andɷ3are regressioncoefficientstobeestimated,andɸi,tisanindependentandidenticallydistributed errorterm(i.i.d.).AlleconomicvariablesaretakenfromBBR(2011).Estimationisbasedonthe modelbeingtransformedintofirstdifferences,therebyexcludingtheindividualai

K 'gyit, GG 2''' t t 3 DiD it E 1ln( y it ,1 ) ¦ E k ' ln( x it ,1, k ) u it ,(2) k 2

withuit=ɸi,tͲɸi,tͲ1.

Thehostcountyofanairportmightnotbetherightdelineationforcapturingtheairport’s economiccontribution.Typically,airportsarenotlocatedinthecenterofcounties;thisespeͲ ciallyholdsforairportslocatedinbiggercities.Theyarerather situatedin theperipheryof citiesorinadjacentcounties.Thus,simplyconsideringthehostcountiesofairportsasrelevant regionalunitisnotappropriate,sincetheireconomiceffectsspreadouttoadjacentregions (i.e.,spilloverscrosscountyborders).ThisproblemistackledbydefiningimputedairportreͲ gions which deliberately construct buffers around the airport’s reference point (see Paloyo etal.2010fordetails).

Thechosenradiusof15kilometersroughlyrepresentsthemeanradiusofGermancounͲ ties.Thus,thebuffersizeisrathersmall.16Thepaperconcentratesontheregionaleffectsin theimmediateproximityofanairport.Furthermore,sincemanylocalmunicipalitiesprovide largesharesofthesubsidiesandtheyjustifythisbythepositivespillovers,suchsmallbuffers aretherightdemarcationfortheobjectiveofthispaper.Thus,hinterlandeffectsareintenͲ tionallydisregardedinthisapproach.WhetherairtransportsupplyhasapositiveoverallimͲ pactonGermanseconomyisaseparatequestion.

Theeconomiccharacteristicsoftheseairportbuffersaredefinedbythevariablesofthose administrativecountieswhicharelocatedinthebuffer.Precisely,thebuffervariablesaredeͲ fined by the withinͲbuffer weighted means, with the respective spatial shares serving as

16Thefollowingresultsarenotsensitivetoavariationofbuffersizesfrom10to30kilometer(withexceptionof the30kmͲdefinition,notshowninthepaper,butavailableuponrequest).

ͳͲ weights.Sincenearlyallairportbuffersconsistofmorethanonecounty(theonlyexceptionis HannoverͲLangenhagen), the number of observations is much smaller than the number of regions.17AlthoughDüsseldorfͲWeezeandMemmingenareregionalairportstoday,theyare ignoredintheempiricalanalyses,sincetheydidnotserveasregionalairportsin1997.Weeze was opened in 2003 while civilian use in Memmingen started in 2004. All these limitations reduce the original sample size of 413 German counties to 271 observed regional units. An overviewontheregionalandinternationalairportsaswellasamapwiththebuffersisprovidͲ edinFigureA.1intheappendix.

DescriptivestatisticsofthesampleareprovidedinTable1.ItappearsthatregionswithareͲ gionalairportandthosewithoutthesefacilitiesdonotdiffersubstantially.ThemeanGDPper laborforcegrowthis0.002percentagepointshigherintheairportregions.18Theairportand nonͲairportregionsdonotdiffersubstantiallyinalmostallthevariablemeans,asthetͲtestin thelastcolumndocuments.Onlythelogofpopulationandemploymentdisplayhighermeans intheairportregions.

Table1:DescriptiveStatisticsforairportandnonͲairportregions NonͲAirportregions Airportregions(24) (247) Mean Min/ Mean Min/ (Std.Dev.) Max (Std.Dev.) Max tͲstatistic GDP(growth) 0.030 Ͳ0.041/ 0.028 Ͳ0.260/ Ͳ0.505 (0.039) 0.218 (0.039) 0.252 GDPpl(growth) 0.027 Ͳ0.036/ 0.025 Ͳ0.262/ Ͳ0.621 (0.037) 0.211 (0.039) 0.294 GDPpc(growth) 0.033 Ͳ0.040/ 0.029 Ͳ0.241/ Ͳ1.065 (0.039) 0.222 (0.040) 0.261 GDPpl 48.725 21.502/ 49.804 17.702/ 1.808* (x103) (8.333) 68.455 (8.650) 90.099 GDPpc 23.431 7.429/ 23.608 6.230/ Ͳ0.102 (x103) (6.399) 37.273 (9.071) 76.558 ln(employment) 4.258 1.807/ 4.100 2.915/ Ͳ9.198*** lagged (0.884) 5.739 (0.540) 6.861 ln(Population) 5.007 2.821/ 4.893 3.649/ Ͳ7.904*** (0.793) 6.525 (0.546) 7.184 Density 0.006 0.000/ 0.010 0.001/ 2.061** (x103) (0.009) 0.066 (0.033) 1.027 Note:AllvariablesaretakenfromBBR(2011).***,**,*denotesignificantdifferences atthe1%Ͳ,5%Ͳand10%Ͳlevel.

17Thebuffersarealsoconstructedfortheinternationalairportswhichareignoredinthefurthercourseofthe analyses. 18 CloserexaminationoftheminimalgrowthratesinnonͲairportregionsshowthattheseareoutlierswhichare supposedtobeartificiallyconstructedbycorrectionsoftheofficialstatistics.

ͳͳ TheinvestmentactivitiesatGermanregionalairportsreflecttheincentiveswhichthedereguͲ lationoftheaviationmarketprovidedtoregionalpolicymakers.Varioustypesofinvestments were undertaken; airports expanded their terminals or runways and better connections to publictransportwereestablished.Inaddition,someairportsprovidedregularairͲserviceswith scheduledflightsforthefirsttimeafterthereform.Onlyforthreeofthe24regionalairports, therearenoexplicitinvestmentsfoundfor1997andtheadjacentyears.19

4. Results

Toprovideafirstimpression,resultsfromabasicestimationsetupdemonstratewhether airportregionsdisplayahigherGDPperlaborforcethannonͲairportͲregions.20Notethatthe motivationfortheseestimationsismerelytoillustratetheendogeneitybiasofsuchasetupin comparisontothesubsequentidentificationstrategies,basedonthe(quasiͲ)experiment.FoͲ cusingonthispreferableidentificationapproach,aDiDmodelisestimatedafterthecommon trend assumption is tested. These baseline estimations are followed by various robustness checkstoconsiderthreecrucialissuesoftheidentification:First,theAshenfelter’sDipprobͲ lem, second the sensitivity to changes of the definition and the spatial demarcation of the treatmentgroupandthirdchangingdefinitionsofthecontrolgroup.Anumberofsecondary testsarepresentedintheappendix.

4.1. Estimationresults

ThefirstimpressioninTable2showsthattheexistenceofanairport–unconstrainedon internationalorregional(column(i)and(ii))–clearlycorrelateswiththelevelofregionalGDP perlaborforce.Thespecificationincludingcontrolvariables(column(ii))suggeststhattheGDP perlaborforceis3.5%highercomparedtoregionswithoutanairport.OmittingallinternaͲ tionalairportsfromthesamplereducesthiseffectto1.9%incolumn(iv),althoughitremains significant.However,thesefindingscanonlydrawanincompletepicture,sincetheestimation approachdisregardsanyendogeneityproblems.

19 Excludingthesethreeregionsfromtheestimationsdoesnotchangethefollowingresults. 20IncontrasttosubsequentDiDͲestimationsbasedonthegrowthoftheGDPperlaborforce,thisestimationis basedontheitslevelvaluessincepotentialairportinducedgrowtheffectfadedinaftertheiropeningandthey shouldshowupinhigherlevelvaluestoday.

ͳʹ Table2:PooledͲOLSwithoutDiDforallandregionalairports

DependentVar: Allairports RegionalAirports LogofGDPpl (i) (ii) (iii) (iv) Airport 0.040*** 0.035***Ͳ0.015 0.019*** (0.009) (0.004) (0.009) (0.004) WestGermany 0.347*** 0.158*** (0.011) (0.012) ln(Population) 0.005*** 0.002* (0.001) (0.001) ln(PopulationͲ 0.036*** 0.032*** Density) (0.003) (0.003) StateͲDummies N Y N Y CountyͲtype N Y N Y TimeDummies N Y N Y No.ofRegions 287 287 271 271 No.ofObs. 4845 4495 4624 4288 Note:***,**,*denotesignificanceatthe1%Ͳ,5%Ͳand10%Ͳlevel.Robuststandard errorsclusteredoncountyͲlevelinparentheses.

TosupporttheapplicationoftheDiDapproach,Figure1displaysthegrowthoftheGDP perlaborforceseparatelyfortreatedandnonͲtreatedregions.Thebasicassumptionofthe DiDimpliesthatbothgroupswouldhavedevelopedequallyintheabsenceofthetreatment. Sincethisisanassumptiononthecounterfactualitcannotbestatisticallytested.AvisualinͲ spection of Figure1 shows only minor level differences in the preͲtreatment development which can be captured by regional fixed effects (Angrist/Pischke, 2008), therefore the DiD seemstobeasuitablemethod.

This impression is corroborated by “placebo regressions” with altered definitions of the treatmentintherobustnesstests.Notefurther,thatasimple“beforeandafter”analysisof airportregionsinsteadofaDiDwouldprovidemisleadingresultssinceitonlyfocusesonthe highergrowthofGDPperlaborforceamongairportregionsafterthereformwithoutaccountͲ ingforthequitesimilardevelopmentofthecontrolregionsovertime.

ͳ͵ Figure1:CTA,TreatmentandnonͲTreatmentgrowthrate (AnnualGDPperlaborforcegrowthrate)

ThemainresultsinTable3donotshowastatisticalsignificantexpansioneffectofthereͲ gionalairportsongrowth.Thevariableofinterest(DiDͲestimator)whichaccountsforreformͲ inducedgrowthremainsinsignificant.Thegrowingnumberofcontrolvariablesdoesnothave anyinfluenceonthestatisticalsignificanceoftheDiDcoefficient.Theseresultsareconfirmed byrathersimilarresultsinTableA.1whichconsiderthedynamiccorrectionofthefixedeffect modelasproposedbyBruno(2005).SincethedynamiccorrectioninitiallyatartsfromaBlunͲ dellͲBond (1998) estimation which also faces some shortcomings, e.g., potentially imprecise estimatorsinarathersmallcrossͲsectional(Bruno2005),andsincethedynamiccomponent seemsnottobiasstandardfixedeffectestimations,thefurtherestimationsarebasedonthe standardfixedeffectmodel.

ͳͶ Table3:DiDͲFixedeffectsforregionalairports Dep. Variable: GDPplgrowth (i) (ii) (iii) (iv) DiDͲestimatorͲ0.004Ͳ0.004Ͳ0.003Ͳ0.002 (0.008) (0.004) (0.005) (0.003) PostͲTreat Ͳ0.023*** 0.004*** 0.002 0.003 (0.002) (0.001) (0.002) (0.002) ln(GDPpl) Ͳ0.160***Ͳ0.149***Ͳ0.295*** lagged (0.008) (0.009) (0.012) ln(employment) 0.092*** 0.054**Ͳ0.079*** lagged (0.017) (0.022) (0.022) ln(Population) 0.084*** 0.126*** lagged (0.026) (0.032) ln(Density) Ͳ0.000Ͳ0.001** lagged (0.001) (0.001) Constant 0.042*** 0.261***Ͳ0.035 0.844*** (0.002) (0.076) (0.105) (0.134) TimeDummies N N N Y No.ofRegions 271 271 271 271 No.ofObs. 4352 4352 4288 4288 Note:***,**,*denotesignificanceatthe1%Ͳ,5%Ͳand10%Ͳlevel.RobuststandarderͲ rorsclusteredoncountyͲlevelinparentheses.

4.2. RobustnessTests

Potential weaknesses of the main results are tested in the following robustness checks. First,theestimationsofaDiDmightbebiasedsincereformeffectsareanticipatedandpreͲ reformadjustmentstothenewscenerytakeplace(Ashenfelter’sDip).AlthoughairportplanͲ nersdidanticipatethereformtheycouldnotbenefitfrompreͲreformadjustmentssincethe marketsituationcouldnotchangenotablybeforethederegulation.Therefore,anearlierinͲ vestment did not lead to advantages in the preͲreform period. Nevertheless, construction measures which were required before the deregulation to provide adequate infrastructure maybiastheresults.Thisbiasmaybetwofold,ontheonehandreformͲinducedconstructions mayhavecausedpreͲreformgrowthandthereforebiastheexpansioneffectdownwards.On theotherhand,airportoperationsmayhavebeenreducedduetosuchconstructionsinpreͲ reformyearsleadingtoanupwardbiasoftheestimatedexpansioneffect.

TheAshenfelter’sdipproblemconcernsthepreͲreformyears.Sincetheexpansioneffects may have taken time to spread out and to attract airport activities (and since some investͲ mentswerenotcompletedintime)thefirsttwopostͲtreatmentyearsareexcludedinfurther estimations.TheresultsofthetwostrategiesarepresentedinTable4,column(i)and(ii)focus ontheAshenfelter’sdipandexcludetheyears1996and1995,thelattercolumnsexcludethe years1997and1998.Table4showsthattheestimatedDiDcoefficientsremaininsignificant whenexcludingtheseyears.

ͳͷ Table4:DiDͲFixedeffectswithexcludedyears (DependentVariable:GrowthofGDPperlaborforce) Exclusionof… 1996 1995&1996 1997 1997&1998 DiDͲestimatorͲ0.005Ͳ0.007Ͳ0.002Ͳ0.002 (0.004) (0.005) (0.003) (0.003) PostͲTreat 0.009*** 0.019*** 0.016*** 0.010*** (0.003) (0.004) (0.003) (0.003) ln(GDPpl)Ͳ0.296***Ͳ0.305***Ͳ0.293***Ͳ0.291*** lagged (0.013) (0.013) (0.012) (0.012) ln(employment)Ͳ0.082***Ͳ0.077***Ͳ0.080***Ͳ0.075*** lagged (0.024) (0.026) (0.024) (0.024) ln(Population) 0.132*** 0.133*** 0.128*** 0.134*** lagged (0.033) (0.035) (0.033) (0.032) ln(Density)Ͳ0.001**Ͳ0.001*Ͳ0.002***Ͳ0.002*** lagged (0.001) (0.001) (0.001) (0.001) Constant 0.824*** 0.830***Ͳ0.293***Ͳ0.291*** (0.137) (0.140) (0.012) (0.012) TimeDummies Y Y Y Y No.ofGroups 271 271 271 271 No.ofObs. 4024 3760 4021 3754 Note:***,**,*denotesignificanceatthe1%Ͳ,5%Ͳand10%Ͳlevel.Robuststandarderrorsclusteredon countyͲlevelinparentheses.

Assecondrobustnesscheck,thetreatmentgroupisvariedbythedefinitionofthethreshͲ old between regional and international airports. Since the assumption to treat all airports (listedbytheADV)withatmostonemillionpassengersperyearasregionalairportsmightbe crucial, this threshold is varied from 0.5 million to 5 million passengers in columns (i)Ͳ(v) in Table5.Sincethoseairportregionswithpassengernumbersabovethethresholdareexcluded fromtheestimations,thenumberofincludedregionsandobservationsincreasewithaninͲ creasing threshold. The last column restricts the treatment group on the legally defined reͲ gional airports independent of the respective passenger numbers.21 The results in Table 5 showthattheDiDcoefficientisrobusttothedifferentdefinitionsofthetreatmentgroup.

21TheestimationsinTable4coverthesamecontrolsascolumn(iv)inTable3.Thus,resultsofcolumn(ii)(1milͲ lionpassengers)equalscolumn(iv)inTable3.

ͳ͸ Table5:DiDͲFixedeffectsforregionalairports Dep.Variable: TreatmentͲThreshold:Max.passengersperyear Legally GDPplgrowth 0.5million 1million 2million 2.5million 5million defined DiDͲestimatorͲ0.002Ͳ0.003Ͳ0.003Ͳ0.004Ͳ0.004Ͳ0.005 (0.003) (0.003) (0.003) (0.003) (0.003) (0.004) PostͲTreat 0.009*** 0.003 0.003 0.003 0.009*** 0.009*** (0.003) (0.002) (0.002) (0.002) (0.003) (0.003) ln(GDPpl)Ͳ0.296***Ͳ0.296***Ͳ0.294***Ͳ0.296***Ͳ0.296***Ͳ0.294*** lagged (0.012) (0.012) (0.012) (0.012) (0.012) (0.012) ln(employment)Ͳ0.082***Ͳ0.082***Ͳ0.080***Ͳ0.082***Ͳ0.081***Ͳ0.079*** lagged (0.022) (0.022) (0.022) (0.022) (0.022) (0.023) ln(Population) 0.131*** 0.131*** 0.130*** 0.132*** 0.132*** 0.131*** lagged (0.031) (0.031) (0.031) (0.031) (0.031) (0.031) ln(Density)Ͳ0.001**Ͳ0.001**Ͳ0.001**Ͳ0.001**Ͳ0.001**Ͳ0.001** lagged (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) Constant 0.834*** 0.837*** 0.830*** 0.830*** 0.824*** 0.810*** (0.133) (0.133) (0.132) (0.132) (0.131) (0.131) TimeDummies Y Y Y Y Y Y No.ofRegions 270 271 276 278 279 264 No.ofObs. 4288 4320 4368 4400 4416 4160 Note:***,**,*denotesignificanceatthe1%Ͳ,5%Ͳand10%Ͳlevel.Robuststandarderrorsclusteredon countyͲlevelinparentheses.

Furthermore,thesizeofthebufferswhichmarkthetreatedregionsaroundtheairportsis varied.TheradiusofthetreatmentͲbufferisdoubled(30km)toobservepotentialeffectsina largergroupofregions.Basedonthisenlargedbuffersize,theDiDcoefficientturnsslightly negative (presented in column (i) of Table6). In addition, one might be concerned that the stable unit treatment value assumption (SUTVA) is violated in the estimations setup. If the regionswithintreatmentbufferaffecttheoutcomeoftheadjacentcontrolregionsbysome negativeorpositivespillovers,thecoefficientofthetreatmentestimatorisbiased.

To overcome this problem, again the 15 km buffers are considered as treatmentgroup. But,topreventadirecttransitionfromtreatmenttocontrolgroup,allregionswithinthe30 kmbufferbutoutsidethe15kmbufferareignoredandneitherconsideredasmembersofthe treatmentnorthecontrolgroup.Thus,spilloversfromtreatedregionscannotdirectlyinfluͲ ence the control group (column (ii) of Table6). This estimation does not show a significant result.

ͳ͹ Table6:DiDͲFixedeffectsvariedbuffersize (DependentVariable:GrowthofGDPperlaborforce) (i) (ii) Excludedring 30kmbuffer from15Ͳ30km DiDͲestimatorͲ0.005*Ͳ0.005 (0.003) (0.003) PostͲTreat 0.005* 0.012*** (0.003) (0.003) ln(GDPpl)Ͳ0.295***Ͳ0.004 lagged (0.012) (0.005) ln(employment)Ͳ0.080***Ͳ0.150*** lagged (0.022) (0.013) ln(Population) 0.127*** 0.054 lagged (0.031) (0.033) ln(Density)Ͳ0.001** 0.087** lagged (0.001) (0.035) Constant 0.849*** 0.814*** (0.135) (0.200) TimeDummies Y Y No.ofGroups 271 154 No.ofObs. 4288 2426 Note:***,**,*denotesignificanceatthe1%Ͳ,5%Ͳand 10%Ͳlevel.RobuststandarderrorsclusteredoncountyͲ levelinparentheses.

Third,onemightbeconcernedthatthebroaddelineationofthecontrolgroupwhichcomͲ prisesallGermanregionswithoutanairportisinappropriate.Asdiscussedinsection2,airͲ portsmightbelocatedinregionswithspecificeconomiccharacteristics.Hence,ifthesecharͲ acteristics determine the probability for having an airport on the one hand and the growth expectationsoverthetreatmentperiodontheotherhand,theempiricalstrategy,maylead astray.Ineconometricterms,thecharacteristicsofthecontrolvariablesmaynotoverlapbeͲ tweenthetreatmentregionsandacriticalmassofcontrolregionsinthesample.Accordingto thisconcern,controlregionswhichdiffersubstantiallyfromtheairportregionsintheirregionͲ alcharacteristicswouldhavetobeexcludedfromtheestimation.

In the spirit of a matching approach, a propensity score is estimated based on a probit model.

K pzvikii ¦ E ln( ) (3) k 1

Onthelefthandside,thedummypiindicatesifaregionhasanairport(pi=1)ornot(pi=0).On therighthandside,ziindicatesaverybroadsetofregionalcontrols,ߚkaretherelatedcoeffiͲ

ͳͺ cientstobeestimatedand,ʆiisani.i.d.errorterm.Sincevariationovertimedoesnotreally offerfurtherinformation,themodelisestimatedwithobservationsoftheyear1996,thelast preͲreformobservation.Theestimatedoutcomes( pˆ )indicatearegionalprobabilityforhostͲ inganairport.Therangeoftheestimatedairportprobabilities( pˆ )oftheairportregionsdeͲ cides which regions enter the control group.22 Only those nonͲairport regions with a ( pˆ )withintherangeof( pˆ )ofairportregionsareconsideredinthecontrolgroup.Regions withanexceptionallylowprobabilityforhavinganairportareexcluded.

Table7:ProbitfortheAirportprobability (DependentVariable:AirportDummy) DependentVar.: AirportDummy (i) ln(GDP) 20.465** (8.762) ln(GDPpw)Ͳ1.935 (1.981) ln(GDPpl)Ͳ16.391* (8.529) Positivemigration 1.046** (0.458) ln(Population)Ͳ0.564** (0.257) ln(Density)Ͳ19.591** (8.785) WestGermanyͲ0.205 (1.121) ConstantͲ16.706*** (5.971) CountyTypes Y FederalStateDummies Y Lowest pˆ ofapt.region 0.015 Highest pˆ ofapt.region 0.975 No.ofObs 287 Note: ***,**,* denote significance at the 1%Ͳ, 5%Ͳ and 10%Ͳlevel. Robust standard errors in parentheses.

AsTable7shows,therangeofpredictedairportprobabilities()pˆ forairportregionscover aspectrumfrom1.5%to99.8%.Thisresultsuggeststhatthereisbasicallynoregionwhichhas

22Togiveanexample,ifthelowestpredictedairportprobabilityofanairportregionis50%,allthosecontrolreͲ gionswithaprobabilitybelow50%areexcludedfromthefollowingDiDestimation.

ͳͻ norealisticprobabilityforhostinganairport.Thus,thebroadselectionofthecontrolgroups posesnoproblems.23Thisfindingsupportstheargumentthatthemilitarybackgroundofmost airportsismuchmoreimportantforairportlocationthananyeconomicconsiderations.

Furtherrobustnesschecksareprovidedintheappendix.TableA.2presentstwo“placebo regressions”whichrefertoahypotheticalderegulationeventduringthepreͲtreatmentperiod ignoringallpostͲtreatmentobservationsandanotherhypotheticalderegulationeventduring the postͲtreatment period ignoring all preͲtreatment observations. While an artificial treatͲ ment during the preͲtreatment period strengthens the previously discussed common trend assumption,thelatterartificialtreatmentcanratherindicateeffectsofthetreatmentwhich fadeinafteracertaintime.Theyears1994and2000arechosenforthehypotheticalreform. Inbothcases,thecoefficientoftheDiDremainsinsignificant.

Toensurethattheseresultsarenotbasedonthelowerproductivityofnewjobscausedby theairportexpansion,regressionswiththegrowthoftotalGDPgrowth,GDPpercapitagrowth andgrowthoftheemploymentasdependentvariablesareappliedandreportedinTableA.3 (column(i)Ͳ(iii)).Noneofthesechangesleadstodivergingfindings.Toavoidthedeterioration oftheaviationmarketafter9/11,thesampleperiodends2001incolumn(iv)whichdoesnot changetheobservedresults.

5. Conclusion

The EU Commission has recently announced that subsidization of airports which merely survive due to substantial public support will be prohibited after 2024. Since most of the smallerandregionalairportsinGermanyarecurrentlysubsidized,theyarefacingsevereprobͲ lemsfortheirfutureexistence.Proponentsoftheregionalairportsemphasizetheimportance ofpositivespilloversonemploymentandeconomicgrowththroughouttheregion.Thispaper probesifGermanregionalairportsindeedgenerateabettereconomicperformanceintheir environment.

Investmentsininfrastructuresuchasairportsareanoutcomeofeconomicperformance andfuture economicexpectationsand,correspondingly,evaluationssuffer fromtherelated endogeneityproblems.ThederegulationoftheEuropeanaviationmarketmarksanexogenous event which can be seen as a (quasi)Ͳexperiment for the expansion of regional airports. An increasingnumberofairlinesdemandedfurtheroperationslotsinGermanyandshiftedtothe regionalairports.Andthoseairportspreparedtheirinfrastructurewithmassiveinvestmentsto fulfill the airlines’ requirements, quite independent from the contemporaneous economic conditions.Furthermore,themilitarybackgroundofmostregionalairportsmakestheirlocaͲ tionlessdependentontheeconomicconditionsintheirenvironment.

Basedontheassumedexogeneityoftheexpansion,aDiDisappliedwhichconductsthe periodafter thereformin1997astreatment period.ForthespatialdefinitionofthetreatͲ

23TheassociatedDiDwithouttheregionswithaprobabilitybelow1.5%isnotshownhere.

ʹͲ ment,regionalbufferswitharadiusof15kmareconstructedaroundtheairports.Ignoringthe possibleendogeneityproblemswouldleadtoapositiveestimationofairporteffectsonthe GDPperlaborforce.ThisappearstodriveearlierpositivefindingssuchasAllroggen/Malina (2014). However, when taking into account the preferred deregulationͲbased identification strategy,theestimatedeffectsarenegligible.

Abroadsetofrobustnesschecksstrengthensthesefindings.Theresultsarerobusttoa changeofthedefinition ofregionalairports,variousdemarcationsofthecontrolandtreatͲ mentgroups,avoidanceofanAshenfelter’sdipbytheexclusionofyearsaroundthederegulaͲ tion,andchangesofthedependentvariable.Areasonforthesesoberingresultsmightbethe overwhelmingopportunitycostsoftheairportoperation.Sincemanymunicipalitiesspenthigh amountsintheoperationoftheairports,thiscapitalistiedupbytheairportandother–posͲ siblybetterinvestments–areprecluded.Thisoverallresultissupportedbyarecently pubͲ lishedreportoftheEuropeanCourtofAuditorsthatdetectedsevereunsuccessfulsubsidized airportͲprojects in southern European countries with sobering costͲbenefit relations (EUCA 21/2014).

NotethattheevidencepresentedheredoesnotsuggestanyconclusionsregardingtheefͲ fects of international airports. It may be the case that airports need to exceed a certain thresholdtofadeoutspillovers.Furthermore,thehighdensityofairportsinGermanymaybe areasonfortheresults,sincefurtherbenefitsofanexpandedairportmightberatherlowina denseairportnetwork.Besidestheadvancesoftheappliedidentificationstrategy,thismight beafurtherexplanationforthedifferingfindingsinthispapercomparedtoexistingliterature forothercountries.

Basedontheeconomiceffects,thispaperdoesnotconfirmconcernsofregionalpoliticians thatregionswillsufferonceairportsubsidieswillbecut.Sincetheexpansionofairportshad nopositiveeffects,adownscalingofactivitiestowardssustainableairportswithoutsubsidiesis notsupposedtohavemajornegativeeffectsonthesurroundingmunicipalities.Inaddition, theprovisionofbetterregionalairtransportinfrastructuredoesnotseemtobeapromising instrumenttostimulategrowthinlaggingregions.

ʹͳ References Allroggen,F.,&R.Malina,2014.Dotheregionalgrowtheffectsofairtransportdifferamong airports?.JournalofAirTransportManagement,37,1Ͳ4.

Angrist,J.D.,&J.S.Pischke,2008.Mostlyharmlesseconometrics:Anempiricist'scompanion. Princetonuniversitypress.

ArbeitsgemeinschaftDeutscherVerkehrsflughäfen(ADV),2015,Verkehrszahlen–Archiv. Onlineavailable:http://www.adv.aero/verkehrszahlen/archiv/

Aschauer,D.A.,1989.Ispublicinfrastructureexpenditureproductive?.JournalofMonetary Economics,23,pp.177–200.

Augurzky,B.,Bauer,T.K.,&Schaffner,S.(2006).CopaymentsintheGermanHealthSystemͲ DoTheyWork?.RWIDiscussionPapers:43. Baltagi,B.(2008).Econometricanalysisofpaneldata(Vol.1).JohnWiley&Sons. Barrett,S.D.,2000.AirportcompetitioninthederegulatedEuropeanaviationmarket.Journal ofAirTransportManagement,6(1),13Ͳ27.

BBR(FederalOfficeforBuildingandRegionalPlanning),2011.LaufendeBeobachtungendes BundesinstitutsfürBauͲ,StadtͲundRaumforschung,variousissues.Bundesamtfür BauwesenundRaumordnung,Bonn.

BBR(FederalOfficeforBuildingandRegionalPlanning),2009.Siedlungsstrukturelle Kreistypen.Publishedonline:http://www.bbsr.bund.de.

Becker,S.O.,Boeckh,K.,Hainz,C.,&L.Woessmann,2014.TheEmpireIsDead,LongLivethe Empire!LongͲRunPersistenceofTrustandCorruptionintheBureaucracy.TheEconomic Journal.(onlinefirst)

Blonigen,BruceA.&Cristea,AncaD.,2012.AirportsandUrbanGrowth:Evidencefroma QuasiͲNaturalPolicyExperiment(No.w18278).NationalBureauofEconomicResearch.

Brueckner,J.K.2003.Airlinetrafficandurbaneconomicdevelopment.UrbanStudies40(8): 1455Ͳ1469.

Bruno,G.S.,2005.EstimationandinferenceindynamicunbalancedpanelͲdatamodelswitha smallnumberofindividuals.StataJournal,5(4),473.

Burghouwt,G.,J.Hakfoort,2001.TheevolutionoftheEuropeanaviationnetwork,1990– 1998,JournalofAirTransportManagement,Volume7,Issue5,Pages311Ͳ318

Button,K.J.,Doh,S.andYuan,J.,2010.Theroleofsmallairportsineconomicdevelopment, JournalofAirportManagement,4,pp.125–136.

Button,K.&Taylor,S.,2000.Internationalairtransportationandeconomicdevelopment. JournalofAirTransportManagement6:209Ͳ222.

Button,K.,&Yuan,J.,2013.Airfreighttransportandeconomicdevelopment:anexamination ofcausality.UrbanStudies,50(2),329Ͳ340.

ʹʹ Cezanne,W.,andA.Mayer,2003.FlugplatzalsWirtschaftsfaktorͲMöglichkeitenundFormen derLandeplätzealsWirtschaftsfaktor,AnalysederimLandvorhandenenSituation.

CommitteeoftheRegions,2004.OwnͲinitiativeopinionoftheCommitteeoftheRegionson ‘LowͲcostairlinesandterritorialdevelopment’.OfficialJournaloftheEuropeanUnion. (2004/C318/02).Brussels

Cidell,J.,2014.Theroleofmajorinfrastructureinsubregionaleconomicdevelopment:an empiricalstudyofairportsandcities.JournalofEconomicGeography

Cidell,J.,2003.Theconversionofmilitarybasestocommercialairports:existingconversions andfuturepossibilities.JournalofTransportGeography11,93–102.

Destatis,2015.RegionaldatenbankDeutschland.ErläuterungBruttoinlandsprodukt, Bruttowertschöpfung.PublishedOnline:https://www.regionalstatistik.de/genesis/online

EuropeanLowFaresAirlineAssociation,2004.LiberalizationofEuropeanAirTransport:The BenefitsofLowFaresAirlinestoConsumers,Airports,RegionsandtheEnvironment. Brussels

GoetzA.R.1992.AirpassengertransportationandgrowthintheU.S.urbanSystem,1950Ͳ 1987.GrowthandChange23:218Ͳ242.

Graham,B.,Guyer,C.,1999.Environmentalsustainability,airportcapacityandEuropeanair transportliberalization:irreconcilablegoals?.JournalofTransportGeography7,165–180.

Graham,B.,1998.Liberalization,regionaleconomicdevelopmentandthegeographyof demandforairtransportintheEuropeanUnion.JournalofTransportGeography,6(2), 87Ͳ104.

Graham,B.,1997.RegionalairlineservicesintheliberalizedEuropeanUnionsingleaviation market.JournalofAirTransportManagement,3(4),227Ͳ238.

GrahamB.,1995.GeographyandAirTransport.Wiley,Chichester.

Green,R.2007.Airportsandeconomicdevelopment.RealEstateEconomics35:91Ͳ112.

FrédéricDobruszkes,MoritzLennert,GillesVanHamme,2011.Ananalysisofthe determinantsofairtrafficvolumeforEuropeanmetropolitanareas,JournalofTransport Geography,Volume19,Issue4,Pages755Ͳ762

Mawson,J.,1997.AirtransportliberalizationintheEuropeanUnion:anassessment.Regional Studies,31(8),807Ͳ812.

MukkalaK.,TervoH.,2013.Airtransportationandregionalgrowth:whichwaydoesthe causalityrun?.EnvironmentandPlanningA45(6)1508–1520 Nickell,S.(1981).Biasesindynamicmodelswithfixedeffects.Econometrica:Journalofthe EconometricSociety,1417Ͳ1426. Nijkamp,P.,Geenhuizen,M.,1997.Europeantransport:challengesandopportunitiesfor futureresearchandpolicies.JournalofTransportGeography5,4Ͳ11.

ʹ͵ Paloyo,A.R.,Vance,C.,&Vorell,M.2010.Theregionaleconomiceffectsofmilitarybase realignmentsandclosuresinGermany.DefenceandPeaceEconomics,21(5Ͳ6),567Ͳ579.

Robertson,J.A.W.1995.Airportsandeconomicregeneration,JournalofAirTransport Management,Volume2,Issue2,June1995,Pages81Ͳ88

Sheard,N.,2014.Airportsandurbansectoralemployment.JournalofUrbanEconomics,80, 133Ͳ152.

Thompson,I.,2002.Airtransportliberalisationandthedevelopmentofthirdlevelairportsin France,JournalofTransportGeography,Volume10,Issue4,December2002,Pages273Ͳ 285

VanPraag,B.M.S.andB.E.Baarsma,2005.UsingHappinessSurveystoValueIntangibles: TheCaseofAirportNoise.TheEconomicJournal,115:224–246.

Vickerman,R.,Spiekermann,K.,Wegener,M.,1999.Accessibilityandeconomicdevelopment inEurope.RegionalStudies33:1Ͳ15.

ʹͶ TableA.1:CorrectedDiDͲFixedeffects(Bruno,2005) Dep. Variable: GDPpllevel (ii) (iii) (iv) DiDͲestimatorͲ0.006Ͳ0.003Ͳ0.003 (0.005) (0.005) (0.004) PostͲTreat 0.008***Ͳ0.011*** 0.003 (0.002) (0.002) (0.003) ln(GDPpl) 0.899*** 0.916*** 0.761*** lagged (0.005) (0.006) (0.008) ln(employment) 0.109*** 0.023Ͳ0.084*** lagged (0.01“) (0.017) (0.018) ln(Population) 0.175*** 0.196*** lagged (0.025) (0.025) ln(Density) Ͳ0.000Ͳ0.001 lagged (0.001) (0.001) TimeDummies N N Y No.ofRegions 271 271 271 No.ofObs. 4352 4288 4288 Note:***,**,*denotesignificanceatthe1%Ͳ,5%Ͳand10%Ͳlevel.RobuststandarderͲ rorsclusteredoncountyͲlevelinparentheses.

ʹͷ TableA2:PlaceboRegressions(DiDͲFixedeffects) (DependentVariable:GrowthofGDPperlaborforce) (i) (ii) Hypothetical Hypothetical Treatmentin1994 Treatmentin2000 (excludingt>1996) (excludingt<1997) DiDͲestimatorͲ0.007 0.001 (0.006) (0.003) PostͲTreat 0.010*** 0.058*** (0.004) (0.004) ln(GDPpl)Ͳ0.434***Ͳ0.327*** lagged (0.021) (0.020) ln(employment)Ͳ0.097Ͳ0.056** lagged (0.060) (0.028) ln(Population) 0.672*Ͳ0.004 lagged (0.388) (0.042) ln(Density)Ͳ0.620Ͳ0.001 lagged (0.418) (0.001) Constant 4.779 1.531*** (4.314) (0.166) TimeDummies Y Y No.ofGroups 271 171 No.ofObs. 1056 3232 Note: ***,**,* denote significance at the 1%Ͳ, 5%Ͳ and 10%Ͳlevel. RobuststandarderrorsclusteredoncountyͲlevelinparentheses.

ʹ͸ TableA.3:Variousrobustnesscheck(DiDͲFE) Dep.Variable: (i) (ii) (iii) (iv) (v) (vi) GDPplgrowth(or Dep.Var. BiggestPassenͲ Dep.Var.GDP Dep.Var.GDPpc Skippedafter RegionalAirports seecolumn Employment gersurplus(10 growth growth 2001 legallydefined headline) growth Apt) DiDͲestimatorͲ0.004Ͳ0.005Ͳ0.002Ͳ0.001Ͳ0.005Ͳ0.011*** (0.005) (0.005) (0.003) (0.003) (0.004) (0.003) PostͲTreat 0.008*** 0.008*** 0.005*** 0.020*** 0.009*** 0.009*** (0.003) (0.003) (0.001) (0.004) (0.003) (0.003) ln(GDPpl)Ͳ0.293***Ͳ0.290*** 0.002Ͳ0.377***Ͳ0.294***Ͳ0.293*** lagged (0.014) (0.014) (0.006) (0.016) (0.012) (0.013) ln(employment)Ͳ0.202***Ͳ0.220***Ͳ0.122***Ͳ0.103***Ͳ0.079***Ͳ0.079*** lagged (0.025) (0.025) (0.010) (0.033) (0.023) (0.023) ln(Population) 0.219*** 0.283*** 0.092*** 0.227*** 0.131*** 0.128*** lagged (0.039) (0.037) (0.016) (0.051) (0.031) (0.032) ln(Density)Ͳ0.001*Ͳ0.001* 0.000Ͳ0.003***Ͳ0.001**Ͳ0.002*** lagged (0.001) (0.001) (0.000) (0.001) (0.001) (0.001) Constant 0.883*** 0.627*** 0.039 0.736*** 0.810*** 0.816*** (0.152) (0.148) (0.067) (0.237) (0.131) (0.134) TimeDummies Y Y Y Y Y Y No.ofGroups 271 271 271 272 264 257 No.ofObs. 4288 4288 4288 2384 4160 4072 Note:***,**,*denotesignificanceatthe1%Ͳ,5%Ͳand10%Ͳlevel.RobuststandarderrorsclusteredoncountyͲlevelinparentheses.

FigureA.1:Airportandtherespectivebufferregions RegionalAirports InternationalAirports • Altenburg • BerlinͲSchönefeld • Augsburg • BerlinͲTegel • Bayreuth • Bremen • BraunschweigͲWolfsburg • Dresden • Dortmund • Düsseldorf • ErfurtͲWeimar • FrankfurtamMain • FrankfurtͲHahn • Hamburg • Friedrichshafen • Hannover • Hof • Köln/Bonn • Karlsruhe • Leipzig/Halle • KasselͲCalden • München • Kiel • Nürnberg • Lübeck • Stuttgart • Magdeburg • Mönchengladbach • Münster • Neubrandenburg • Paderborn • Rostock • Saarbrücken • Schwerin • Siegerland • StralsundͲBarth • Zweibrücken