Air connectivity and foreign direct investments: economic effects of the introduction of new routes

Abstract

Purpose The key research question for this study was whether the spatial network structure offered by the global airline system contributes to the development of Italian inward Foreign Direct Investments (FDIs). We argue that the introduction of a new route, by reducing firm's transport costs and facilitating tacit and complex knowledge flow, should increase the likelihood of FDI exchange between newly connected regions. Methods We employed a comparison group design considering both small and medium enterprises and large companies at the municipality level.Results The results showed that FDIs increased overall by 33.7% in the two years after opening of the new routes while FDIs in the control group decreased by 16.6%. Similar results were obtained using different measures of FDI (i.e. the number of generated employees) and by weighting the routes by their frequencies. Conclusions Given the substantial benefits that urban areas can obtain from attracting multinational firms, our results provide new evidence of the contribution of transport infrastructures to local development. From a policymaker perspective, regional policies aimed at attracting FDIs must contextually promote the development of transport infrastructure and in particular international airports. Investments to improve air transport capacity, strategies to attract both traditional and low-cost airlines, providing legal authorization or financing ground transport are all critical aspects for the success of such policies.

Do international flights promote FDI? The role of face‐to‐face communication

“…If a firm faces a choice between exporting and local production to serve a foreign market, freight services discourage FDI in favor of exporting. As Bannò and Redondi (2014) and Fageda (2017) do not account for freight flights, their findings on passenger flight effects may partly reflect an effect of freight services. In this respect, I can clearly distinguish between passenger and freight services.…”

Competitive Advantages and Barriers in International Construction: An Origin-Host Market Approach

“…Business in a geographically distant country is generally complex; the exchange of information is easier and more frequent between nearby countries, while transport costs for raw materials and products can be excessive between remote countries (Ghemawat, 2004). Moreover, Bannò and Redondi (2014) established that air connectivity increases investment in a specific area, and Abdul-Aziz et al 2013reported that trade agreements provide companies with greater knowledge of the destination countries.…”

Air Transport and its Socio-Economic Impacts

“…The objective of any state/region should be to preserve already existing air routes, as these also contribute to the overall attractivity and enable the flow of FDIs. Supporting (financially) the air transport infrastructure should become an integral part of strategies to attract the FDIs [34].…”