Can air traffic booms induce innovation and bridge regional innovation gaps?

Abstract The key role of innovation in long-term economic growth is well-established, but it is unevenly distributed across regions. This paper examines how increased air passenger traffic fosters innovation and whether it reduces innovation disparities. Focusing on regional innovation in Indonesia, measured by patent activity, we utilize the exogenous airline deregulation in the early 2000s, which significantly boosted domestic air passenger traffic. Using a newly geocoded patent dataset for Indonesian municipalities from 1995 to 2016, we find that domestic air passenger traffic positively affects regional patenting. This result is robust across various samples and sensitivity tests. However, increased air passenger traffic alone may not suffice to reduce innovation disparities within the country.