The effect of an increase in the Low Cost Carrier capacity on the level of European Economic Integration

This paper theoretically and empirically investigates the relationship between the Low Cost Carrier (LCC) activity and the level of European Economic Integration (EEI). Furthermore it tests the hypothesis that the effect of an increase in LCC capacity has a stronger effect on the level of EEI than the effect of entering the Eurozone. On the basis of theory it is expected that an increase in the capacity of low cost airlines would positively affect economic integration. LCC capacity is expressed as a capacity share and as the absolute number of LCC passengers. In this paper different models have been tested and I argue that the models based on the absolute number of LCC passengers are the most reliable. However, both varieties deliver mainly negative and significant effects for the LCC activity. The effect of the Euro is significantly positive in the majority of the models. Therefore the hypothesis that the effect of the low cost airlines is at stronger presence than the effect of the Euro should be rejected. Although the results are quite robust, the models suffers from some serious limitations and therefore the results should be interpreted with high caution and future research is recommended.