Factors Affecting Role of Air Transportation in Economic Development: Evidence from Indonesia

Air transportation in Indonesia has become one of the largest aviation markets in the region. With its unique geographical condition and the fate of having thousands of islands, airlines have tons of competitive advantage compared to the other transportation mode to grow overtime substantially. Simultaneously, Indonesian government is also expecting this industry to support the overall economic performance as of the country. This study analyses possible factors that might affect the air transportation performance which can bring greater economic prosperity in the future. The performance measured in two sectors: passengers and air cargo. Moreover, by taking Indonesia fiscal decentralization policy into account, this study also able to explain the analysis in provincial level by using the valid databases from World Bank, Indonesia Central Bureau of Statistics, and Indonesia Ministry of Transportation. The result shows that passengers and cargo are positively affected by the level of infrastructure of transportation such as airports and the main competitors including seaports and train station. Moreover, government spending in infrastructure and budget of tourism also affect the air transport performance both passengers and cargo. Indonesia can be considered as a developing country with immense potential of air transport development in the future.