Friday, March 31, 2006
In my last post I tried to answer the question: why do people (and firms) locate near airports? While using our models of urban economics was useful in providing theoretical answers I though this time I would look for the answers the real world has to offer. What I found was: it’s all about the money. Oddly enough I found
The first answer I found was that airports aren’t cost effective, by themselves at least. According to an article in the International Herald Tribune by Kevin Brass, “beyond the basics of terminals and runways, many of the largest airports now derive as much as 50 percent of their revenue from sources not directly related to aviation, like shopping areas and restaurants.” As we see from the basics of our monocentric city model, other businesses will locate near by along with residential neighborhoods for the workers of the airport firms.
The second is a little more tantalizing. Form the same article, “outside Seoul, the expansion of the Incheon airport is a crucial part of New Songdo City, a free trade zone of 607 hectares, or 1,500 acres, that includes 4.6 million square meters, or 50 million square feet, of offices and a large residential complex.” To turn a phrase, one could say: if you tax it, they will flee. Airports are attracting firms because of the tax incentives associated with doing business within the confines of these free trade zones.
Could it be that airports will spell the demise of trade barriers, or will airports be swallowed up from sight by neighboring businesses?