Department of Agricultural and Resource Economics

In recent years, many hubs in the highly interdependent U.S. air transport network have become congested, leading to delays for business travelers and freight shipments. Recent events in this industry may have temporarily reduced this congestion, but contributed to other types of disruptions. Since delays and disruptions at one node of the network exacerbate problems throughout the system, airport infrastructure expansion to enhance traffic flows and security in large hubs may confer substantive spillover benefits in the form of travel-time savings and reliability. This may in turn translate into increased worker productivity and shipping efficiency, and thus lower costs, for manufacturing firms. In this paper we evaluate the impacts of such spillovers, by applying spatial econometrics techniques to a cost function framework, using state-level data on airport and highway infrastructure, and manufacturing production. We find that increasing own-state airport infrastructure tends to generate cost-saving benefits for the state's manufacturing industry, primarily due to non-production labor- and materials-savings. However, airport expansion in connected hubs has an even greater impact, implying an important externality component of such investment. Also, unless airport expansion is accompanied by highway infrastructure investment, congestion seems to counteract the associated benefits, especially in large-hub states with less than 5 percent of the nation's passenger enplanements.