The determinants of air cargo flows and the role of multinational agreements - An empirical comparison with trade and air passenger flows

Abstract

This paper analyses the effect of the standard gravity model variables and of various multinational agreements—namely the Euro, the European Union (EU), the Schengen Agreement and other regional trade agreements (RTAs)—on the volume of air cargo flows. To compare the impacts, the data set created for this analysis contains intra- and extra-European air cargo flows as well as data on air passenger and total trade flows. The results suggest that the impact of the analysed multinational agreements on air cargo flows diverges completely from their impact on total trade flows—however, the effects on air cargo flows are more similar to the effects on air passenger flows. Whereas the Euro and the Schengen Agreement affect air cargo volumes positively, EU membership and other RTAs do not significantly affect trade by air. Methodology-wise, different dynamic structural gravity models are formulated and estimated with Poisson pseudo-maximum likelihood (PPML). Including intranational flows and controlling for multilateral resistance, endogeneity and globalisation effects reverses the impact of some of the policy variables compared with an estimate based on a simple structural gravity model.