The impact of air transportation on trade flows: A natural experiment on causality applied to Italy

Efficient air transportation services can boost regional economic development by allowing access to the world market, facilitating integration and labor mobility, and fostering local industries. In this regard, aviation can act as a means of both transporting traded “goods” and providing complementary services of labor mobility. The Lombardy region in Italy is an interesting case, as it is one of Europe's wealthiest and most industrialized areas with almost 10 million inhabitants. It has three of the top four Italian airports-Milan Malpensa (MXP), Bergamo Orio al Serio (BGY), and Milan Linate (LIN)-as well as a small airport in Brescia Montichiari (VBS) mainly used for cargo flights. On March 31, 2008, Malpensa Airport experienced the de-hubbing of Alitalia. This exogenous event allows us to study the relation between international trade and civil aviation by exploiting a quasi-natural experiment without endogeneity problems. We investigate this relation by estimating a before/after augmented gravity-econometric model applied to a panel data set for the period of 2004-2014. The data set includes, for each of the considered 30 European countries, information on trade flows divided by commodities sector, distance from Lombardy, GDP per capita, population, transport infrastructures and a set of other control variables. We estimate the gravity model under three different econometric specifications: random effect panel data, PPML, and PPML with fixed effects to include countries' multilateral resistance. Furthermore we estimate a DID model as a robustness check for possible endogeneity among trade and aviation, using the region of Veneto (similar to Lombardy but not affected by the de-hubbing) as a control case. We find that civil aviation has a positive impact on international trade, with elasticity ranging from +0.003% to 0.13% in the different econometric specifications, and that this effect is stronger in high tech- and medium-tech manufacturing sectors.