Whilst South Asia presents substantive market potential with large, dense populations and significant growth in gross domestic product (GDP), the growth in air transport (freight and passenger) has been much less than in the developed world and very different across countries in this region. This paper examines the determinants of air transport demand in South Asian countries over 43 years (1973-2015) using fixed effects models as well as a three-step error correction mechanism (ECM) approach. The results suggest that per capita income, foreign direct investment (FDI), flight frequency and jet fuel price play a vital role in determining air passenger demand in these low-income countries. Income, FDI, industrialisation and jet fuel price are further found to be significant factors that influence air freight demand in South Asian countries. Moreover, short run and long run equilibrium relationships among the variables were investigated, and our findings suggest a long-run equilibrium relationship with a lag of five years in the air passenger model and a lag of three years in the air freight model. However, only the air passenger model reports a short-run impact from independent variables to air passenger demand, and no short-run relationship is found between our set of independent variables and air freight demand.
- Air transport demand
- Fixed effect and error correction model (ECM)
- Low-income countries
- South Asia