Air transport infrastructure and economic growth in Kenya, 1980-2009

Abstract

This empirical study investigates the relationship between transport infrastructure (with focus on air transport) and GDP growth between 1980 and 2009 in Kenya. The number of air transport passengers was used as a proxy of air transport infrastructure growth. In addition, other variables that are hypothesized to affect economic growth include private physical capital and labor. The study employs cointegration analysis and error correction methods to investigate the relationship. The analysis pays attention to the time-series properties of the data and the existence of long-run equilibrium between the variables. Granger causality tests were also carried out.

The results of unit root tests indicate that all the series are integrated of order one, implying that the series are stationary after first-differencing. The cointegration tests results indicate that the series are cointegrated, implying that there is a long-run relationship between the variables in the model. The estimation results of the error-correction model indicate that the number of air transport passengers has positive short-run impact on real GDP. In addition, a deviation from long-run real GDP in a given year is corrected by about 32% in the next year. The estimation results of the long-run model indicate that the output elasticity with respect to air transport infrastructure is 0.062. Another result is that there is bi-directional Granger causality running from economic growth to air transport and from air transport to economic growth.