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Chapter one

Introduction

1.1Background of the study

Transportation refers to the movement of people and goods from one location to a destination. Transportation is essential to the functioning of any society. It influences the location and range of productive and leisure activities, it affects the location of residence; it influences the range and provision of goods and services available for consumption. It invariably influences the quality of life. Indeed, it has been argued the developments in society can be closely correlated with the introduction of new or improved transport technology.

Air transport is one of the world’s most imperative businesses. Its improvement and specialized administration accomplishments make it one of the significant supporters of the headway of present day societal advancement. The development in the aviation unit can’t be compare by some other significant type of transport because of its detail and new advancements that is going ahead in the area. The above has helped such a great amount in economic and tourism improvement of the country and the world. Interest for air transport administrations has expanded the impact of air transport in the country and worldwide economy, along these lines upgrading fast development of travelers, products and enterprises to the local and world market. This as a result produces higher income to the economy by method for quick in and out stream of merchandise and enterprises. The flight business assumes a vital part in the part of work and recreation to individuals around the globe. The area advances and enhances personal satisfaction, expectations for everyday comforts of individuals inside the country. This produces monetary development and destitution lightening by method for giving business openings, expanding incomes from charges. The employment openings would be created through supply chain transformation from the air terminals (Nwaogbe,Wokil, Omoke, & Asiegbuet., 2013)

Air transportation is a major industry in its own right and it also provides important inputs into wider economic, political, and social processes. The demand for its services, as with most transport, is a derived one that is driven by the needs and desires to attain some other final objective. Air transport can facilitate, for example, in the economic development of a region or of a particular industry such as tourism, but there has to be a latent demand for the goods and services offered by a region or by an industry. Lack of air transport, as with any other input into the economic system, can prevent efficient growth. But equally, inappropriateness or excesses in supply are wasteful (Button, 2008)

Economies, and the interactions that exist within the globe, domestic and the air transport system, are in a continuous state, although economists‟ notions of equilibrium have some very useful intellectual content, and validity in the very short-run. In reality the world is dynamic. This dynamism, of which the particular thrust of globalization is the concern here, has implications for industries such as air transport that service it. But there are also feedback loops, because developments in air transport can shape the form and the speed at which nations‟ development, globalization and related processes take place. The demand for air transport is a derived one; the institutional contexts in which air transport services are delivered have knock-on effects on the economic system. These feedback loops may entail direct economic, political, and social effects that, for example, the system may enhance trade and personal mobility, but they may also be indirect, as for example through the impacts of air transport on the environment (Button, 2008).

Air transport system is fully driven by the global economy; it is an important catalyst to the global economy. International Air Transport Association (IATA) noted that air transport directly employs four million people worldwide and generates $400 billion in output. The efficiency and quality improvements in air passenger services contribute to the growth in government sectors such as hotel, tourism, etc. The free flow of people and information, together with improved air cargo operations, promote trade and improve the efficiency of the overall economy. That is to say that aviation sector imposes significant positive externalities to other industries, contributing to economic and employment growth to the nation (IATA, 2005). Researchers examined the link between high technology employment in a region and whether the region is served by a hub airport (Button, Lall, Stough and Trice, 1999). Button (2006) pointed out that in United States and Europe; more than 40% of air travels are for business purposes. The remaining trips are either for leisure or for visiting friends and relative trips provides the basis upon which social ties are retained and, as such, allow for an efficient and integrated labour market.

Air transport is ideal for the coordination of supply chains, and thereby, improves the overall efficiency of the economy. Hummels (2006) observed that the elasticity of air shipping costs, with respect to distance declined dramatically from 0.43% to 0.045% in 2004. That is doubling distance shipped cause a 43% increase in air shipping costs in 1974, but on a 4.5% increase in air shipping costs in 2004. Furthermore, Aizenman (2004) and Schaur(2006) argued that air shipping may be an effective way to handle international demand volatility. Because air shipments takes hours rather than weeks, organizations can wait until the realization of demand shocks before deciding on quantities to be sold. Air transport shipping provides real option of smooth demand shocks for organizations or firms.

An efficient air transport system and shipping modes helps in quality improvement of the air transport system and also elevate international and domestic trade, business and economic growth of a nation. Limao and Verables (2001) observed that a 10% increase in transport costs reduces trade volume by 20%. Furthermore, recent studies were observed that a 10% increase in time reduces bilateral trade volume by between 5% and 8% (Hausman, Lee and Subramanian, 2005; Djankov, Migiel, Qian, Roland and Zhuravskaya, 2005). Aviation is fully superior to other shipping modes of transport in the terms of its fastness (time) is at the high pace. But its main disadvantage is that of high cost of transportation.

Moreso, Swan (2007) observed that since 1970, both price and production cost for air travel have been declining at about 1% annually. As shipments are of higher value and lighter weight, the ad valorem cost of air freight, ie. the transport cost need to move a dollar of cargo or consignments of air transport has declined by 40% between 1990 and 2004. This is due to air cargo is of growing importance in cargo logistics, accounting for about 40% of international trade by value. Many countries have chosen to locate special economic zones and high technology parks near airports.

Air transport has a unique advantage over all other modes of transport if speed, time and distance are major considerations. Air transport is of high value in relation to weight. It is also preferred where accessibility by other modes is a problem (especially in riverine or mountainous regions). Air transportation is a system with many inter-related parts. Each airport is connected to the system through the airways and other airports with which it exchanges flights. Its share of the GDP is however, still legible in Nigeria (Aderamo, 2010).

In Nigeria, the demand for air transport services has been on the increase within the past three decades. There has been growth in passenger, aircraft and freight traffic as a result of physical and economic development of cities in different parts of the country. The creation of states and the need to develop state capitals for them to perform their socio-economic responsibilities has fuelled the tempo of physical development in the country. Fast connections between the diverse economic spaces of Nigeria are better achieved through air transportation. According to Ogunbodede (2006), the diversity in the resource endowment between the North and the South is an important factor in the growth of air transport in Nigeria. Also, the new civilian administration regards the air transport subsector as a critical focal point in the effort to open up the country to foreign investors and thereby narrow the gap between available and required levels of domestic investment capital (Adeyemi 2001). Based on this background the researcher wants to investigate the air transportation and the Nigeria economy

Statement of the problem

The growth in the aviation sector cannot be matched by any transport units (road, rail and water) due to its unique technical skills and new innovations. This has improved economic and tourist development of the nation. The aviation industry plays an important role in the aspect of work and leisure to people around the globe. The sector helps to promote and improve quality of life, living standards of people within the nation. All this helps to generate economic growth and poverty alleviation by way of providing employment opportunities, increasing revenues from taxes. The employment opportunities would be generated through supply chain transformation from the airports. This makes the industry the gateway to any economy aspiring to develop, enabling globalization, trade facilitation and tourism development. It is very crucial in the promotion of foreign direct investment (FDI) (Ladele, 2012). One can therefore say that the industry is crucial to the growth of the economy and national development. Ladele (2012) in her study of FDI, noted that as the emerging economies grow, their demand for air transportation will grow as their citizens becomes more financially empowered with increased disposable income. The Nigerian aviation sector is face with some factors militating against adequate air transportation service which has diminish its significant impetus to the growth of the sector and the Nigerian economy. It is in the interest of the series of the difficulties and the various policy initiative put in place in the aviation industry that warrant the need to conduct an investigation of air transportation and the Nigeria economy

Objective of the study

The main objective of the study is to determine the effect of air transportation and the Nigerian economy. The specific objectives of the study are;

  1. To determine the impact of air transport sector on the Nigeria economy
  2. To know the influences of air transportation in developing countries
  3. To get the aggregate level of the waste caused by poor air transportation system in the Nigerian economy

Research Hypotheses

The following research null hypotheses are formulated to guide the study;

H1: Air transportation has no significant impact on the Nigeria economy

Significance of the study

The study will beneficial to students, lecturers, aviation sector, policy makers and Nigeria government. The study will give a clear insight on the air transportation and the Nigerian economy. The result of the study will enlighten the general public on the contribution of air transportation sector to Nigeria economy. Efficiency in the air transportation sectors of the Nigeria economy through a reduction of elimination of some vital problems will have a positive effect on the national economy. The constitution of new air transport, check on vehicle worthiness will to a large extent revive the air transportation sector and in torn boost activities in the economy as the air transport sector is invaluably the backbone of all other sector in every economy. This work also tends to check whether or not revenue from the government has contributed significantly to the development of air transportation system in the Nigeria economy. The study will also serve as a reference to other researcher that will embark on the related topic

Scope of the study

The scope of the study covers air transportation and the Nigerian economy.  This research will be conducted within and outside the caritas community. This research covers the entire economy so as to obtain enough data they will avoid research is the difficulty together information and data needed for the study.

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