Gravity models of airfreight exports during the pre-COVID era: Evidence from New Zealand

Abstract

This study examines key determinants of New Zealand’s airfreight exports to its key overseas trading partners by empirically estimating augmented gravity models using panel from 2015 to 2018. Consistent estimation results were obtained from static panel-IV gravity model and dynamic panel data GMM mode specifications. The estimation results confirm that GDP per capita and population size of New Zealand’s key trading partners have positive impacts on the gross weight and value of airfreight exports. Scheduled air cargo capacity had limited positive effects on airfreight export weight and value. Alongside findings that the gross weight of airfreight exports was sensitive to transport costs, and the gross value of airfreight exports were sensitive to flying distance and exchange rate, respectively. Dynamic model specifications further suggest persistent trading patterns in airfreight exports. Overall, our analysis suggests that in order to further grow the airfreight export sector in New Zealand, it is important to increase air cargo capacity and reduce transport costs in a sustainable manner, especially at existing hub airports in New Zealand that providing services to both passenger aircraft and freighters. Major aviation and trade liberalisation efforts are called for in facilitating New Zealand’s airfreight exports and air cargo operations.