Services trade liberalisaton and effects on economic growth: Air transportation sector in Turkey

Services are important in terms of their contribution to economic growth as a sector in itself, in other respect, it is also important in terms of its effects on economic growth components. The rising share of services in global economy is remarkable. t is seen that the share of services sector has increased globally in the three-sector structure, which is expressed by industry, agriculture and services whereas in high-income countries, the share of services sector has reached 70% of GDP. Even though the share of services sector in world output is higher than manufacturing, the volume of goods trade is higher than the volume of services trade in all periods. In addition to existing trade barriers to liberalization of services trade; there are natural barriers such as cultural and linguistic differences, the necessity of physical or institutional existence for service delivery, and the differences in standardization varying from country to country. Therefore, the liberalization of trade in services is more complex than the liberalization of trade in goods. Besides its own employment and output, air transportation is a decisive factor for investment decisions and plays a very important role especially in terms of tourism and through improved airline connections has been facilitating international trade by enabling economies to participate in global markets and supply chains. Therefore air transportation is an important component of services sector. For air transportation which is an important service sector component, liberalisation (deregulation) has become a characteristic feature. Air transportation liberalization that is expressed with gradual removal of restrictions related to destination, frequency, capacity and price tariffs, has been spread through the change in the structure of the air service agreements. In this context, Conservative Bermuda I type agreements which were applied after the Chicago convention, has been replaced by open market and open skies agreements; as well as the bilateral agreements and multilateral agreements have implemented. In line with liberalisation process that started with domestic deregulation in America in 1978 and rapidly spread worldwide, there have been significant increases in the number of airline passengers and cargo volume throughout the world. This research investigates the impact of air passenger and cargo volume increases on economic growth for different income level country groups, including high-income (HI), upper middle income (UMI) and low middle income (LMI) countries utilizing Common Correlated Effects Model (CCE) developed by Pesaran (2006) for the period of 1980-2015. The results show that the highest effect of cargo volume on GDP obtained in HI countries compared to other countries. While the impact of cargo, and passenger volume on GDP are higher in HI and UMI countries respectively, relatively lower coefficients obtained in cargo and passenger volume in LMI countries compared to HI and UMI countries. In this research, air transportation sector in Turkey has been examined in general terms and the effects of air transport liberalisation on economic growth in Turkey has been analyzed. For this analysis, at first Aviation Liberalization Index has computed for the period of 1980-2015 for Turkey on annual basis in according with WTO-ALI methodology. The effects of calculated Aviation Liberalization Index on GDP per capita investigated with ARDL Approach. The results show that while liberalization in air transport index may not affect GDP in the short run; it affects GDP per capita positively in the long run.