Aviation-Led Growth: Empirical Evidence from the Philippine

Abstract

This paper empirically examines the aviation-led growth hypothesis for the Philippines by investigating the causality between aviation and economic growth. To do so, the study utilizes various econometric techniques, including Fully Modified OLS, Dynamic OLS, and Conical Cointegration Regression, to estimate the cointegration equation for the time span of 1970 to 2017. By identifying cointegration between aviation demand and economic growth, the study establishes a robust and enduring relationship between the two factors. This finding suggests that changes in aviation activity have persistent effects on the overall economic performance of the Philippines, underscoring the importance of the aviation sector as a key driver of economic development. Moreover, the consistent positive contribution of aviation demand to economic growth across different estimation techniques highlights the significant role played by the aviation industry in fostering economic expansion in the Philippines. This finding emphasizes the potential of the aviation sector to stimulate broader economic activity and create positive multiplier effects throughout the economy. In addition to examining the relationship between aviation and economic growth, the study also employs Granger causality tests to elucidate the direction of causality between these variables. By uncovering the causal links between aviation activity and economic growth, these tests provide valuable insights into the dynamic interplay between the two factors, informing policymakers and industry stakeholders about the potential pathways through which aviation can drive economic development. Furthermore, the study's focus on the Philippines offers context-specific insights that can guide targeted policy interventions and strategic decision-making within the country. Given the Philippines' geographical characteristics and developmental priorities, understanding the linkages between aviation and economic growth is crucial for designing effective policies aimed at promoting sustainable development and enhancing competitiveness. The findings of this study contribute to the broader literature on the role of transportation infrastructure, particularly aviation, in driving economic growth and development. By highlighting the importance of the aviation sector as a catalyst for economic activity, the study underscores the significance of investing in aviation infrastructure and creating an enabling regulatory environment to support the industry's growth trajectory. This study serves as a valuable resource for policymakers, industry stakeholders, researchers, and practitioners seeking to harness the potential of the aviation sector to foster sustainable economic growth in the Philippines. Its findings provide empirical evidence to support evidence-based policy formulation and strategic planning aimed at maximizing the economic benefits derived from aviation development.