Measuring the effects of open skies agreements on bilateral passenger flow and service export and import trades

Abstract

In this paper, we measure the effects of Open Skies Air Services Agreement (OSA) on bilateral passenger flow and service export and import trades for a country. Our service trade data includes ‘commercial’, ‘transportation’, ‘travel’, and ‘government’ services. Using the Canadian data, a reduced-form gravity-type difference-in-differences (DID) regression is conducted to test the Canada's OSA and the US OSA on Canada's bilateral passenger flow and service trade. A two-stage regression DID regression is conducted to show that OSA affects service trade through its direct effect on bilateral passenger flow. Our estimations strongly suggest that Canada's OSA has positive effect on bilateral passenger flow and service export and import trades, especially for the commercial service trade, while the US OSA has the negative effect. The two-stage regression also suggests bilateral passenger flow contributes to larger service trade volume. OSA has clear lag effects on bilateral passenger flow and service trade. The positive effect of Canada's OSA and negative effect of US OSA all increase over time after the signing.