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Air travel Demand and Income: Empirical Investigation and Future Scenarios

Speakers: Shoibal Chakravarty and Massimo Tavoni, Princeton Environmental Institute, Princeton University -- Global demand for air transport has been characterized by a steady and rapid growth in the past 20 years, at a rate roughly 50% higher than that of economic activity. With growing population and standards of living, and a significant share of developing countries that fly very little, identifying the main drivers of air demand is an important research and policy question. Despite the currently small contribution of aviation to global CO2 emissions –in the order of 5%-  concerns over the sustainability of an industry for which few “cleanâ€? alternative exists have increased in the past few years. Among the determinants of flying, the existing empirical literature has identified income as the most relevant one, with an elasticity well above unity. Yet, an explicit characterization of this relation seems to be missing. In this paper, we present a novel approach aimed at establishing the link between air passenger demand and personal income. We present a simple model that makes use of income distribution data and we test it employing a global panel data set of country level air travel. We provide evidence of a sigmoid relationship, marked by a steep take off in air travel demand beyond a per capita GDP of 20-30k$, but we do not to identify any specific saturation level. The results match quite well those of US travel demand surveys. This evidence suggests that the distribution of income is an important factor in determining the evolution of air travel.We use our model to generate scenarios of air passengers in the long term. We use our model to generate scenarios of air passengers in the long term.
We focus on fast growing countries such as China, to check the implications of different patterns of growth and distribution of income on the aviation industry at the regional and global level. Looking at technology and industry organization, we are able to comment on the contribution of aviation to global warming. We conclude the paper with some policy recommendations.

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Date/Time: 04/29/09 at 5:00 pm - 04/29/09 at 6:30 pm

Category: PECS

Department: Grand Challenges