Macroeconomic Determinants of Air passenger Demand in Egypt

Abstract

Air transport is strategic for economic development of Egypt's regional integration and economic growth supporting people mobilization, reinforcing Egypt's strategic geographic location. The current study examined the main economic determinants of air passenger demand in Egypt during the period 1982 till 2019 studying the interaction between short and long run variables using VECM "Vector error correction model" that found long run equilibrium relationship among studied variables. The positive significant demand factors found by short run analysis using VECM estimation and confirmed by Wald statistics and Granger Causality are consumer price index, and household consumption, while negative significant variables found to be foreign exchange rate, deposit interest rate. Further analysis carried using "Impulse response functions" IRFs and Variance decomposition found that the strongest variables are air carrier as proxy of air transport infrastructure showing the importance of infrastructure development over long run, followed by CPI as proxy of price level, household consumption as proxy of wealth effect and exchange rate as proxy of net export effect. The weakest impacts are deposit interest, and GDP per capita. GDP per capita found to be insignificant shows that demand on air travel is requested by travelers from abroad not only depend on local residents which also shown by negative significance of exchange rate.