An inquiry into nexus between demand for aviation and economic growth in Pakistan

The main purpose of the study is to empirically examine the aviation-led growth hypothesis for Pakistan by testing causality between aviation and economic growth. We resort to econometric tests such as unit root tests and test of cointegration purposed by Johansen (1988). Fully Modified OLS and Dynamic OLS are used to estimate the cointegration equations for time span of 1973 to 2012. Empirical results reveal the existence of causality between aviation demand and economic growth. Positive contribution of aviation demand to economy is more prominent as compared to that of economic growth to aviation demand. The positive contribution of aviation demand to economic growth is similar in both estimation techniques. Findings help in lime-lighting the importance of aviation industry in economic growth for a developing country like Pakistan.