International trade and air cargo: Analysis of US export and air transport policy

Distance and transport cost matters for international trade but which is more relevant? What impact does transport policy such as Open Sky have on cost of trade? Using US export data by air transport with 21 trading partners for 1998–2002 we first find that airfare is more significantly correlated with export than distance and that elasticity of export in ad-valorem with respect to airfare is −0.571. Second, the level of unit cost and market concentration has significant positive effect on airfare. Third, air cargo markets with Open Sky Agreements have lower unit cost but higher market concentration, and these agreements have negative dynamic effect on combined index of unit cost and market concentration. We may need to go beyond Open Skies if we are to pursue further enhancement of competitive forces in air cargo market to facilitate international trade.