China’s civil aviation industry experienced an average annual growth rate of over 16% for traffic turnover during 1955-2011. It is important to identify the role of capital and labor inputs as well as total factor productivity (TFP) in China’s civil aviation industry during this period of time. First, the inputs of capital stock and labor as well as the output of traffic turnover in China’s air transport industry are measured. Next, the constrained E-G two-stage estimation of the CD production function is used to calculate the capital and labor elasticities and TFP, which provides the necessary basis for the estimation of the growth sources in China’s air transport industry from 1955 to 2011. The results show that the growth of China’s civil aviation industry has depended on the capital factor input and that TFP has played an increasingly important role. Furthermore, the results also indicate that private sources have been crucial for improving the TFP after the 2002 reform.
In recent years, the air transport industry in China has received significant attention internationally due to its rapid growth rate over the past thirty years, even after the onset of the 2008 financial crisis. In 1950, the turnover of the air transport industry in China was 1.57 million tonne-kilometers (tkm), which increased to 57.32 billion tkm in 2011. The average annual growth rate of the turnover (tkm performed) of the air transport industry in China was 18.8% during this period, which was extraordinary relative to that of this industry elsewhere in the world; the global average annual growth rate was 9.0% during this time. The United States and France, which are developed countries, had average annual growth rates of 7.4% and 8.3%, respectively, in this sector. The corresponding value for India , another large developing country, was 9.4% during this period.
The “Big Boom”, namely, the rapid growth of the air transport industry in China, has generated interest in its growth sources. Many studies have focused on the “China Miracle” [
Were the growth sources of the air transport industry in China consistent with those of the macro economy? China began to import aircrafts from Western countries in 1970 to replace those made in the former Soviet Union, which might impact the growth sources in the air transport industry in China. After the open-door policy was adopted in 1978, the air transport industry in China experienced major reforms in 1980, 1987 and 20021. Did these institutional transitions change the pattern of growth sources in this industry? To answer these questions, this paper identifies the main sources that supported the rapid growth of the air transport industry. Any evolution of growth sources may have policy implications.
Although there have been no studies on the growth sources of the air transport industry, some studies had investigated the productivity of airlines and airports, which might provide useful information and references about relevant estimation approaches and data processing, including the calculation of capital and labor.
The pioneering work could be traced back to the estimation of TFP for US airlines by Caves et al. [
Good [
Charnes et al. [
There have also been some similar studies on airports’ TFP. Parker [
Yuen and Zhang [
In contrast, there have been many studies on the growth sources of China’s economy due to the “China Miracle” [
Li et al. [
Chow [
Wang and Yao [
Lin and Sun [
All these studies focused on the productivities of micro entities (airlines or airports in the air transport industry) or the macro economic growth sources in China . There are no studies on the TFP of air transport industry of a country as a whole as there are difficulties to measure the aggregate capital and labor involving in different types of enterprises. However, they provided very important references about how to calculate inputs and outputs as well as how to determine the output elasticities of factors that were essential in the measurement of growth sources. Furthermore we are wondering if the air transport industry in China is pushed forward by capital investment just like the aggregate economy.
In this study, the factor inputs are the capital and labor used in air transport industry and the output is turnover (tkm). All the original data employed to compute those inputs and outputs for the estimation of the growth sources come from the 1983-2012 China Civil Aviation Statistical Yearbooks, which were published by the Civil Aviation Administration of China (CAAC). These yearbooks contain various data forChina’s air transport industry from 1950 to 2011.
The method used to measure capital input is vital to the computation of growth sources in the air transport industry. Currently, the various studies on the economic growth sources of China use different approaches to measuring capital input. Chow [
Concerning productivity studies of airlines and airports, Oum and Yu [
In our study, the growth sources of the air transport industry, including airlines, airports and other supporting and auxiliary sub-sectors, will be measured. Thus, it is difficult to compute the physical capital or flow of capital services from the various sub-sectors as the capital input. Instead, the capital stock of the air transport industry will be used as the capital input. The disadvantage of this approach is that some capital may be excessive and provide no productive services in the life cycle.
The capital stock used in our estimation will be limited to the scope of fixed capital except for inventory and working capital due to the easy computation of the currently available data. The perpetual inventory method will be employed to measure the capital stock of China’s air transport industry as follows:
where
The original and net values of fixed assets and the newly increased fixed assets of China’s air transport industry were available from the China Civil Aviation Statistical Yearbooks. However, the accounting concepts of the original value of fixed assets and the net value of fixed assets are not the appropriate connotation of capital input. Thus, the newly increased fixed assets will be used to compute the fixed capital stock.
The total annual newly increased fixed assets of China’s air transport industry are published in the China Civil Aviation Statistical Yearbooks and the China Civil Aviation Statistical Compilation (1949-2000). However, in recent years, the scope of this statistical indicator only includes the assets formatted by state investment. As all the enterprises in China’s air transport industry were state-owned before the reform and open-door policy, the China Civil Aviation Statistical Compilation (1949-2000) indicates that before 1983, all investments in infrastructure and technological improvement came from the state. Thus, the newly increased fixed assets in the statistics from 1949-1982 are considered as to be those of the whole industry. After 1982, the newly increased fixed assets in a given year are computed from the difference in this year’s original value of fixed assets and the previous year’s, which are listed as the value for the whole industry. It should be noted that the newly increased fixed assets in 1998 are negative using this computing approach. Therefore, the sum of the newly increased fixed assets in infrastructure, the newly increased fixed assets in technological improvements and investments in purchasing and renting aircrafts and other vehicles is used instead of the negative figure for 1998.
The official deflators for fixed capital formation in China have been published since 1990. Therefore, deflators for fixed capital formation before 1990 have to be calculated. Shan [
The determination of the economic depreciation rate is a key issue in the measurement of fixed capital. Here, we refer to the approach based on the life cycle of fixed capital used by Huang et al. [
Based on data availability, 1955 is chosen as the base year for the measurement of capital stock. The net value of fixed assets can be obtained, which is taken as the capital stock of the industry, considering the development stage of the macro economy and this industry in China .
The calculation results for capital stock from 1955 to 2011 for China’s air transport industry are listed in
The difficulty in the measurement of labor in an industry is considering the relative qualities of various types of labor. Chow [
Windle [
Based on employee data in the China Civil Aviation Statistical Yearbooks, we may obtain the total number of employees and some breakdown numbers; thus, the total number of employees is divided into two groups: crew members (pilots, co-pilots and cabin attendants) and other personnel. After 2002, only the data for crew members could be obtained. The average ratio between crew members and other personnel from 1995-2001 is used to construct a time series for the other personnel from 2002 to 2011. Using the income of each group as the weight, the total number of employees is adjusted as the labor input to reflect the different role of different groups of employees in the production.
The adjusted labor input is contained in
Studies on the national economic growth sources always use GDP as the output. The added value of the air transport industry could be calculated based on the national input-output table, but it is difficult to measure the added value of the air transport industry in China, as its earliest national input-output tables were published in the 1970s and were not published annually.
In the studies of airline productivity, passenger and cargo traffic are commonly used as the output. Windle [
Year | Labora (employees) | Capital (million RMB, 1955 constant prices) | Turnoverb (million tkm) | Year | Labora (employees) | Capital (million RMB, 1955 constant prices) | Turnoverb (million tkm) |
---|---|---|---|---|---|---|---|
1955 | 2696 | 65 | 9 | 1984 | 43,376 | 1723 | 446 |
1956 | 4167 | 86 | 16 | 1985 | 48,762 | 2204 | 607 |
1957 | 4845 | 145 | 14 | 1986 | 54,696 | 3183 | 726 |
1958 | 6274 | 180 | 20 | 1987 | 58,226 | 6139 | 966 |
1959 | 10,737 | 253 | 30 | 1988 | 69,590 | 6425 | 1125 |
1960 | 12,354 | 321 | 36 | 1989 | 75,301 | 7412 | 1048 |
1961 | 12,037 | 311 | 31 | 1990 | 75,865 | 8688 | 1271 |
1962 | 10,565 | 297 | 22 | 1991 | 82,813 | 10,675 | 1624 |
1963 | 10,481 | 291 | 25 | 1992 | 93,338 | 14,526 | 2238 |
1964 | 11,924 | 384 | 31 | 1993 | 102,909 | 16,084 | 2683 |
1965 | 12,114 | 403 | 40 | 1994 | 104,710 | 19,809 | 3055 |
1966 | 12,778 | 438 | 42 | 1995 | 111,360 | 23,817 | 3843 |
1967 | 12,765 | 461 | 47 | 1996 | 102,997 | 26,719 | 4490 |
1968 | 13,411 | 455 | 39 | 1997 | 95,102 | 32,335 | 4688 |
1969 | 12,404 | 450 | 37 | 1998 | 74,041 | 35,731 | 5074 |
1970 | 15,971 | 449 | 39 | 1999 | 95,792 | 52,770 | 5616 |
1971 | 19,302 | 513 | 43 | 2000 | 97,667 | 51,710 | 6450 |
1972 | 24,960 | 621 | 49 | 2001 | 97,529 | 67,940 | 7720 |
1973 | 26,668 | 876 | 57 | 2002 | 104,046 | 70,541 | 9252 |
1974 | 24,277 | 1091 | 82 | 2003 | 111,444 | 72,804 | 9753 |
1975 | 25,754 | 1097 | 107 | 2004 | 125,677 | 69,604 | 12,960 |
1976 | 26,301 | 1094 | 112 | 2005 | 137,690 | 77,973 | 14,741 |
1977 | 27,017 | 1206 | 126 | 2006 | 163,367 | 80,870 | 17,208 |
1978 | 30,512 | 1334 | 173 | 2007 | 184,029 | 83,183 | 20,372 |
1979 | 32,380 | 1400 | 211 | 2008 | 180,523 | 98,608 | 21,220 |
1980 | 34,345 | 1561 | 244 | 2009 | 166,611 | 106,372 | 25,164 |
1981 | 34,349 | 1554 | 282 | 2010 | 164,905 | 113,982 | 30,488 |
1982 | 36,310 | 1520 | 322 | 2011 | 180,214 | 121,717 | 33,612 |
1983 | 39,330 | 1581 | 322 |
aThe original number of employees is divided into crew and other personnel, and the labor input is then adjusted using their income shares as weights. bThe turnover is calculated using domestic and international turnover by the weight of revenue shares of each group.
For airport productivity, the passenger volume, cargo volume and aircraft movement are usually used as the outputs [
As we measure the growth sources of the whole industry, the outputs should be the final outputs of the whole industry as well. In the air transport industry, the final outputs are produced by airlines. Airports and other sub-sectors provide supporting or auxiliary services or intermediate services to airlines. Thus, the outputs of airlines will be considered as the final outputs of this industry. To simplify the measurement of output, the domestic and international turnovers of China’s air transport industry (expressed in tonne-kilometers, tkm) are used as the outputs in our analysis. Following the approach of Windle [
The essential issue in the measurement of the growth sources of the air transport industry is to compute the output elasticities of factors. Two different types of approaches to determine the output elasticities of different factors were identified in previous studies. Li [
Due to the difficulty in measuring the income of the two inputs in our study and the imperfect competition of the air transport industry, econometric approaches will be used in this measurement of growth sources. As the production elasticities of the inputs and the TFP are needed to measure the growth sources of China’s air transport industry, the Cobb-Douglas production function is used. Thus, the basic CD production function for China’s air transport industry is as follows:
where
Taking the log of both sides of Equation (2), we obtain
where
Technological advances usually cause the production function to change with time. The inputs and outputs in our model are all time series; thus, we will include a time trend variable into the model to explain the technological changes. Equation (3) will be
where t is the time trend. The technological change effect could be computed and is constant:
In the practical estimation, we will consider whether the time trend affects the input elasticities.
Based on Equation (4), utilizing the connotation of the Solow residual, the equation for the calculation of TFP growth could be obtained as follows:
where
Before the starting of estimation of the Cobb-Douglas production function, the unit root test should be conducted to determine whether the variables of inputs and outputs are non-stationary due to the time series characteristic.
The ADF test approach is employed to test
In the first stage, the OLS is used to estimate the long-term equilibrium relationship among the variables using Equation (4). The initial result reveals a serial correlation by the DW test, after which the generalized difference method based on the Cochraqne-Orcutt procedure is applied to estimate Equation (4) to account for the serial correlation. In the second stage, the residual of the first regression is tested with the ADF approach, which shows that the residual is stationary. Therefore, there is cointegration among the variables. The results are shown in
The sum of the coefficients of
Next, we will assume a constant return to scale in China’s air transport industry, which will restrict the sum of coefficients of capital and labor to 1.
We will now employ a restricted E-G two-stage estimation of the derivation of Equation (4):
The Newey-West HAC standard errors and covariance are used to address the serial correlation in the estimation. In the second stage, the ADF approach is applied to test the residual of the first regression, and the test shows that the residual is stationary at the 10% level. Therefore, there is a cointegration among the variables.
The results are shown in
China’s air transport industry experienced several important institutional changes: in 1980, it broke away from the air force; in1987, airlines and airports became independent of the regulator (CAAC); and in 2002, the airlines were consolidated, and airports were localized. Therefore, we want to incorporate these changes in the estimation as dummy variables.
The estimation shows that only the 2002 institutional change is significant:
The result is shown in
Variable | Coefficient | Std. error | t-statistic | Prob. |
---|---|---|---|---|
C | −7.469806 | 1.218915 | −6.128242 | 0.0000 |
LNK | 0.780815 | 0.087793 | 8.893828 | 0.0000 |
LNL | 0.776255 | 0.191818 | 4.046825 | 0.0002 |
AR(1) | 0.778078 | 0.061286 | 12.69578 | 0.0000 |
Variable | Coefficient | Std. error | t-statistic | Prob. |
---|---|---|---|---|
C | −2.339885 | 0.159748 | −14.64734 | 0.0000 |
@TREND | 0.032078 | 0.013178 | 2.434180 | 0.0183 |
LNK/L | 0.752194 | 0.169743 | 4.431376 | 0.0000 |
allowed private investment in the air transport industry.
We are surprised by the absence of the expected interaction of the 2002 reform and the elasticities of input factors. This phenomenon indicates that the 2002 reform leads to the investment of more resources in this industry and increases the output but does not change the relative efficiency of capital and labor.
Approximately 3.1% of technological progress per year occurred during 1955-2011. This result is larger than that reported by Chow and Li [
Based on
Generally, from 1955-2011, the contributions of capital, labor and TFP to the growth of China’s air transport industry are 64.9%, 14.2% and 20.9%, respectively, indicating that the growth of China’s air transport industry is mainly supported by capital accumulation. This conclusion is in agreement with those of studies on the growth sources of China’s macro economy (Li et al. [
However, the contribution of TFP to the growth of China’s air transport is slightly different from that to the growth of China’s macro economy, with the former being larger than the latter. This difference could be explained by the fact that the development of this industry is driven by technology in China, justas in the rest of the world, and China’s air transport industry introduced advanced Western aircrafts into China years before the open-door policy was adopted, which will be discussed later.
From 1955-1965, the contribution of capital is nearly 90% and that of TFP is negative. The average negative annual TFP growth rate during this period reflects the shift to importing Western aircrafts and other equipment from the former Soviet Union after 1949, although the growth rate of capital is 20%. The negative TFP growth could also be explained by the establishment of a planned economic regime in this industry. During the peak of the Great Cultural Revolution (1966-1970), the air transport industry in China experienced a strong recession, and the inputs of capital and labor decreased dramatically. In particular, the annual growth rate of capital input was less than 1%.
It is surprising that the TFP increased rapidly during 1971-1979 and that its contribution exceeds that of capital. Probing the history of China’s air transport, we find that China bought Trident aircrafts produced by Hawker Siddeley in Great Britain in 1970 and bought ten B707 aircrafts in 1972 to replace the aircraft made in the former Soviet Union. This improvement in aircraft technology greatly promoted TFP and contributed most to the growth of the air transport industry.
Variable | Coefficient | Std. error | t-statistic | Prob. |
---|---|---|---|---|
C | −2.264325 | 0.166828 | −13.57281 | 0.0000 |
D2002 | 0.278521 | 0.095186 | 2.926080 | 0.0050 |
@TREND | 0.030986 | 0.012937 | 2.395137 | 0.0202 |
LNK/L | 0.712062 | 0.160183 | 4.445307 | 0.0000 |
Years | Average growth rate (%) | Contribution to the growth (%) | |||||
---|---|---|---|---|---|---|---|
Turnover | Capital | Labor | TFP | Capital | Labor | TFP | |
1955-1965 | 15.87% | 20.01% | 16.21% | −3.05% | 89.77% | 29.42% | −19.19% |
1966-1970 | −1.64% | 0.64% | 5.74% | −3.75% | - | - | - |
1971-1979 | 21.91% | 13.38% | 6.68% | 10.46% | 43.48% | 8.78% | 47.74% |
1980-1992 | 20.29% | 20.43% | 8.69% | 3.24% | 71.69% | 12.33% | 15.97% |
1993-2002 | 14.74% | 17.85% | 0.12% | 2.00% | 86.21% | 0.24% | 13.55% |
2003-2011 | 16.73% | 6.63% | 6.19% | 10.22% | 28.25% | 10.66% | 61.09% |
1955-2011 | 15.80% | 14.40% | 7.79% | 3.30% | 64.90% | 14.20% | 20.90% |
The rapid growth and substantial contribution of TFP was also observed in 2003-2011, corresponding to the first period in which the investment of private resources in the air transport industry has been allowed, which may explain part of this phenomenon. Another factor in this increase is the institutional change. After 2002, the regulator relaxed some restrictions on the market access of air transport, which includes the route access and slot distribution system. These changes may stimulate market competition and increase the TFP of all market participants, thereby increasing the TFP of the industry. This finding might also be attributed to a statistical issue, as the capital stock may be underestimated during this period of time. Before 2003, only state investment was allowed in this sector, which is reflected very well by the official statistics. However, after 2003, the official statistics might not include all private investment in this sector, as proven by the growth rate of capital stock, which decreased from 17.85% during 1993-2002 to 6.63% during 2003-2011.
The results of our analysis also have policy implications. First, the air transport industry is exhibiting capital intensity growth. State investment alone is insufficient to sustain long-term industry development. It is necessary to allow various sources of investment into this industry, as proven by the results of the 2002 reform in China . Second, technology, especially aircraft equipment, plays a very important role in the development of the air transport industry. Thus, encouraging the development of new types of aircraft and introducing their use is essential to improving the TFP of this industry. Third, institutional change also affects the TFP. The recent increase in free-market access will benefit the long-term development of this industry.
We measure the inputs of capital stock and labor as well as the output of traffic turnover in China’s air transport industry and employ the constrained E-G two-stage estimation of the CD production function to calculate the growth sources in China’s air transport industry. We find that during 1955-2011, capital is the main factor supporting the growth of China’s air transport industry, while the role of TFP is gradually increasing. Although there are several important reforms, only the 2002 reform affects the production function which shows that the market-economy direction reform in air transport industry in China should be deepened further.
However, this study has some limitations. First, the accuracy of the official data may affect the accuracy of our analysis, as demonstrated by the results for 2003-2011. The second limitation is the treatment of the capital input. We use the capital stock as the capital input but not the flow of capital service. Furthermore, the economic depreciation rate used in the calculation of capital stock, as the weighted average of the two depreciation rates, is not very accurate.
XingwuZheng,YiZhang,WeiLu, (2016) What Supported the Growth of China’s Air Transport Industry from 1955 to 2011?. Theoretical Economics Letters,06,48-58. doi: 10.4236/tel.2016.61007