The link between tourism and economic growth is often examined using two distinct methodologies in the literature on tourism economics, i.e., TLGH and the growth-led-tourism hypothesis (GLTH). Given that the main objective of this study is to test the TLGH using air transportation, we divide the literature into two sections: the TLGH and the ALGH.
2.1. Tourism-Led Growth Hypothesis (TLGH)
The tourism-led growth hypothesis was initially proposed by Balaguer et al. [
16] to investigate the tourism and economic growth nexus The findings revealed that tourism boosts economic growth. This hypothesis states that tourism has a positive and significant effect on the economy. Since this study, several different researchers have contributed to extending this theory in various settings.
For instance, Corrie et al. [
17] looked into how tourism affected Australia’s economic development. The study discovered that there is a bi-causal link between GDP and tourism in Australia using Granger causality tests. In research conducted by Ghartey [
18] to investigate the relationships between tourism and economic growth in Jamaica from 1963 to 2008. The results from the ARDL long-run and short-run approach confirmed that an increase in tourist arrivals increases economic growth.
To expand our understanding of the relationship between tourism and economic growth, it is useful to examine the connection in other countries. For example, the TLGH was further tested in European Union countries by Balsalobre-Lorente et al. [
1]. Using different econometric techniques, the study sought to evaluate the TLGH’s validity. The findings ascertain that a 1% increase in tourist arrivals boosts the economic growth by 0.62%. Thus, these results also confirmed the TLGH for European Union countries.
Wu et al. [
19] performed research on the connection between tourism and economic growth between 1995 and 2016 with a focus on 11 Asian areas. Using the multivariate wavelet approach, the validity of the TLGH was confirmed in Cambodia, China, Macau, Malaysia, and Thailand. Global evidence for the validity of the TLGH was found by Tang et al. [
10], who employed a panel dataset of 167 countries from 1995 to 2013 to test this hypothesis. The results from the panel generalised method of moments approach revealed that improving tourism receipts by 10% increases economic growth by 0.3%. Therefore, it is abundantly obvious that tourism contributes positively and significantly to economic growth around the globe.
Similarly, Perles-Ribes et al. [
20] employed the TLGH in Spain, considering the 2008 economic crisis and using data from 1957 to 2014. The variables tourist arrivals (i.e., the number of visitors) and tourism receipts were employed by the authors as a proxy for tourism. The findings of the cointegration and Granger causality techniques showed that the TLGH was valid when the authors utilised the number of visitors, gross value added, and GDP but not when the variable tourist receipts (i.e., revenue). Ertugrul et al. [
21] used the TLGH in a study conducted in the context of Turkey, which showed a strong indication that tourism made a strong contribution to economic growth. The study’s main objective was to examine the empirical nexus between tourism and economic growth by using the bounds test approach and Granger causality. The study used quarterly data from 1998 Q1 to 2011 Q3. The long-run estimation from the ARDL revealed that a 1% rise in tourism leads to an increase of 0.237% in GDP. This shows strong indication tourism makes a strong contribution to increasing economic growth.
Recently, empirical findings of Wong et al. [
22] demonstrated that, in eastern China, there is a positive association between the increase in foreign tourism and economic growth. Additionally, Matzana et al. [
23], in a recent study, revealed tourism activity as an engine of growth, confirming TLGH in European countries.
However, several studies do not support the TLGH. For example, using an autoregressive distributed lag (ARDL) approach and the Granger causality test, Kyophilavong et al. [
24] examined the TLGH and found it was not supported. Likewise, Aslan [
25] investigated the relationship between tourist growth and economic development in Mediterranean nations from 1995 to 2010, and the findings using the panel Granger causality tests did not support TLGH in Malta or Egypt.
2.2. Air Transportation Led Growth Hypothesis (ALGH)
Air transportation is an essential means of allowing international tourists to travel to their desired destinations. The economic effect of air transportation is an area of interest to developed and developing countries. As stated, most researchers used the variables such as international tourist arrivals and/or tourism receipts (revenue) as a proxy for tourism; however, very little research has been conducted using air transportation as a proxy for tourism, and therefore, little is known about the direct effect that the air transportation industry has on the economy.
According to Brida et al. [
26], there exists a cointegration relationship between aircraft movements and GDP, implying a long-run association between these two parameters. Similar to this, Chi et al. [
27] investigated the dynamic link between American economic development and demand for air travel. The findings show that when there is economic expansion, both air passenger and freight services tend to rise over time. However, only air passenger services are responsive to economic expansion in the near term. Additionally, they revealed that the 9/11 terrorist attacks and the SARS epidemic negatively impacted the demand for air travel in the short- and long-term, respectively. Using random effects panel data to examine the impact of air travel on commerce, Brugnoli et al. [
28] suggested that air travel had a favourable impact on global trade. Their findings suggest that the growth of the economy is significantly influenced by air transport.
Abate [
29] empirically examined the financial effects of air travel while taking into ticket prices and service levels as indicated by departure frequency. While accounting for other factors, the empirical models assessed how airfares and departure frequency react to openness measures in air services agreements. According to the findings, routes that underwent some degree of liberalisation had a 40% rise in departure frequency compared to routes that were subject to restrictive bilateral air services agreements. In order to examine the association between trade ties and air passenger traffic across nations in the Asia-Pacific area from 1980 to 2010, Van De Vijver et al. [
30] employed a heterogeneous Granger analysis. In the context of developed countries (such as Australia and New Zealand), the study found no significant association between trade and air passenger travel connections; however, it did find a significant association between air passenger connections and trade connections between Australia and Thailand.
Employment opportunities also lead to economic growth [
31]. Thus, the role of air transport in employment opportunities and growth was examined by Njoya et al. [
32] in South Africa. The study explored the impact of air transport on economic growth, focusing on its capacity to create employment opportunities. The results demonstrated that air transport significantly affects output, income, and employment.
Similarly, Balsalobre-Lorente et al. [
33] analysed the asymmetric impact of air transport on economic growth in a recent study. The authors validated the TLGH using air transportation as a proxy for tourism. The empirical results from NARDL revealed that air transport, the urbanisation process, and social globalisation impact economic growth positively and significantly. The asymmetric NARDL long-run results revealed that a 1% increase in positive air transportation increases economic growth by 1.31% and that negative air transportation increases GDP by 1.44%. Likewise, Brugnoli et al. [
28] conducted tests on air transportation and trade flow in Italy from 2004 to 2014 using random effects panel data. The findings showed that civil aviation had a positive impact on world trade.
From 1981 to 2017, Adedoyin et al. [
34] examined the impacts of air transport, energy, information, and communications technology (ICT) and foreign direct investment on economic development in the United States. This was during the Industry 4.0 period. The casual and long-term relationship between air transport and economic growth was examined in the study. The investigation was carried out using canonical cointegrating regression, fully modified least squares, and dynamic ordinary least squares. The ALGH was validated in the context of their investigation by the econometric techniques, which showed that air travel boosts economic growth. Despite air transportation being an essential indicator of economic activity, it is not always clear that air transport leads to economic expansion; it can also function in the opposite direction. Between the years 1995 and 2006, Yao et al. [
35] investigated the key factors of air transport in China’s regions. Their empirical results suggest that land transportation is adversely correlated with economic growth due to a heightened production function, while air transportation is positively correlated with economic growth with population. Additionally, research by Tolcha et al. [
36] found a connection between the desire for air travel and the advancement of the economy in Sub-Saharan African nations. In determining whether air travel spurs or retards economic growth, the findings showed that in South Africa, Nigeria, and Kenya, long-term causality runs from economic growth to air travel demand; in Ethiopia, however, causality runs in the opposite direction, with higher air travel demand spurring economic development; and in Senegal and Angola, the relationship was found to be too tenuous to suggest any causal directions.
It is clear that air transport plays a significant role in a nation’s economic development. In a recent study, Law et al. [
37] found the existence of a causal relationship between the expansion of air transport and economic growth. However, due to COVID-19, the air transport industry (international) has gradually decreased, but the tertiary sector has increased.
The literature presented here reveals mixed outcomes. To the best of the authors’ knowledge, there is one study conducted to analyse the effect of air transportation on Australia’s economy. In this study, Baker et al. [
38] used panel data spanning 25 years from 88 regional airports in Australia. The cointegration and Granger causality tests suggested that air transportation increases Australia’s economic growth. However, the study by Baker et al. [
38] was conducted in the context of regional aviation/airports using aggregate taxable income as a proxy for economic growth. As a further impediment, this study lacked the overall Australian aviation context using national GDP as an economic indicator because the effect was evaluated using aggregate taxable income. Thus, further in-depth study in the Australian context is required. To fill this research gap, this study uses the control variables such as primary energy consumption, financial development, socialization, and urbanisation in the Australian environment and offers analysis of the impact of air transport on Australia’s economic growth.
The main goal of this study was to determine the answer to the question: Do the relationship between air transport and economic growth symmetric or asymmetric controlling other variables? The following proposed hypothesis will be put to the test in the empirical study, taking into account the relationship between the dependent and explanatory variables:
H1: There is a positive and significant relationship between air transport and economic growth.