Long-Run Economic Effects of Construction of Kobe Airport

Abstract

This is an empirical study to assess the long-run economic effects of airport construction. Kansai metropolitan area, the western big urban area in Japan, has decreased her relative shares in various economic activities. Her reactivation is of great concern not only for local benefit, but also for realization of a well-balanced national development.The extremely limited capacity of air transport is one of possible causes for the marked decline in the relative importance of Kansai. At present, the Osaka airport is the only domestic and international airport in Kansai area. However, the daily flights are limited due to environmental considerations. It is true that new Kansai international airport under construction will improve the international service, but still a big potential demand for domestic service will continue to exist. Thus our main concern is to assess the economic effects of construction of Kobe domestic airport planned by the city authority, assuming the combined use with existing Osaka airport and new Kansai international airport. Three airports will be located roughly in a triangular position, and expected to acceralate the development of Kansai area.A new specific classification of industries is included perticularly attaching importance to airport service, and divided whole industries into three: airport-related secondary, airport-related tertiary, and other industries. We divided Kansai into four regions (Kobe, Osaka, Kyoto and others), and divided the rest of Japan into ten regions. The variables of Kansai four regions are explained endogenously, and the variables of others serve as exogenous variables. We assumed two transport modes, air and railway, between regions, and the time and cost distances are measured between main JR stations in case of railway, and the distances by air are calculated including access time and cost to JR stations. General distance is the sum of cost and time multiplied wage level, and first defined for each transport mode of air and train, and then aggregated by a weighted average with mode ratio function, and used to define various potential variables. These potential variables are intensively used to express the interregional interactions and also the possible impacts of changes in distances.We constructed an econometric model with 227 equations, out of which 60 are structural equations and 167 are definitions. Each equation was estimated by the time-series data between 1965 and 1984. The model explained the demography (social and natural changes of population), sectoral activity (employment, capital and output) and other variables (income, land price and others) of Kansai four regions.We ran a simple projection for 1985-2010 assuming the existence of Osaka airport and the opening of new Kansai airport after 1993. Kobe airport will be constructed between 1992 and 1997. We ran the second simulation in considering the possible impacts through construction work and the opening of Kobe airport. Total cost of construction will be 280 billion yen (1988 price), and the estimated travellers by air will be 5.7 million at 2010. The opening of the airport will have direct impacts through these public works and increasing passengers, and also changes of distances by air and resulting changes in potentials.By comparing two simulations, the effects at 2010 will be as follows: population increase 68410 and 79958, employment increase 49154 and 83455, income increase 2269 and 2884 billion yen, in Kobe and in whole Kansai respectively. At first we proved a high benefit-cost ratio for the construction project of Kobe airport. Secondly we found out a big spill-over effects to surrounding regions in Kansai, as 12 to 41 percent of total increase of population, employment and income were realized in those regions.