A key to urban economic growth or an unnecessary burden? Opening airports in small and medium-sized cities

Abstract

China has recently begun to deploy airports in small and medium-sized cities, and local governments must allocate adequate financial subsidies to maintain their operations. This article examines whether opening airports in small and medium-sized cities is the key to economic growth or an unnecessary burden. To solve the endogeneity problem, we constructed an instrumental variable based on historical ground transportation accessibility and provincial airport density. The main finding is that airports have a positive effect on local economic development. This positive effect depends on the city's industrial foundation and resource endowments. Airports cannot promote the economic growth of cities in remote or poor areas, but they could play an important role in promoting the economy of cities with high-level tourism resources and a strong industry foundation. Airports promote urban economy by increasing comprehensive transportation capacity, improving the market accessibility for enterprises in small and medium-sized cities. Firm-level micro-evidence suggests that airports can shorten the temporal and spatial distances between cities, which significantly increases the productivity, sales, output, exports, and investment scale of industrial firms. Airports promote the economic growth of small and medium-sized cities by enhancing the economic vitality of micro-firms.