ABSTRACT
This chapter analyses what regional economic theory can offer to understand the effects of changes in air transport infrastructure and costs on regional economic development. Regional economic theory deals with uneven development of economic activity over space. The production function determines the maximum output a given set of inputs can produce. Governance stands for the quality of institutions. Institutions represent all organisational aspects of an economy: the political system, the legal system governing property rights, corporate law, and less formal elements like social norms. The theoretical framework to explain unequal regional development is complex and is still developing. Agglomeration of economic activity in one region can also result from input-output linkages. Changes in freight costs are better documented than changes in passenger transport costs. The costs of interregional export and import of goods and services, also called trade frictions, include several components.
