Global Air Network and Cross-border Venture Capital Mobility
Whether the global air network can facilitate cross-border venture capital movements?
Siqi Zheng, Liaoliao Duan, Weizeng Sun. “Global Air Network and Cross-border Venture Capital Mobility” , Habitat International. 2020.
The expansion of global air networks that connect cities in different countries contributes to the convenience of cross-border travel in the age of globalization. Venture capital (VC) firms are specialized financial intermediaries that invest in and provide value-added service to high risk innovative start-ups, thus play an essential role in promoting urban vibrancy and economic evolution.
There is a large increase in both international flights and cross-border VC investments from 1995 to 2017, especially in developing regions.
It is clear that a positive relationship exists between international flights and VC in-flows, as the size of red points tends to be larger on the map.
(On the map, larger size indicates more international flight connections, and the red color means more VC investment deals.)
For further analysis, we merge the Crunchbase VC investment Database with the Traffic by Flight Stage (TFS) dataset published by the International Civil Aviation Organization (ICAO).
(1) Construct a high-dimensional fixed-effects model (staggered DID) to explore the causal effect of flight connections on international VC investment at the city-pair level.
(2) implement a regression discontinuity (RD) design at a distance of 6000 miles to alleviate the endogeneity concern.
The dynamics of the count and passenger traffic volume of international flights from 1995 to 2017.
International flights and passengersNotes: (1) The data are obtained from ICAO’s Traffic by Flight Stage dataset. (2) The blue bar shows the annual total count of international flights from 1995 to 2017, and the orange line in the plot presents the dynamics of passenger traffic volume for the same period.
Cross-border VC investments are booming, with annual deals exceeding 14,000 in 2017.
Cross-border VC investmentNotes: (1) The data are obtained from Crunchbase database (www.crunchbase.cn). (2) The blue bar presents the annual count of VC investment deals from 1995 to 2017, and the orange line in the figure demonstrates the count of city pairs with VC flow for the same period.
World map of VC investment and international flightsNotes: (1) The data are obtained from Crunchbase database (www.crunchbase.cn) and ICAO’s Traffic by Flight Stage dataset. (2) The size of each point indicates the total count of international flights connecting to the city. (3) The color of the point represents the total count of VC investment deals flowing to the city. Specifically, green means smaller VC flow, while red means larger VC flow.
"International airlines have a significant facilitating effect on venture capital mobility."
Based on the difference-in-differences estimate, one additional flight per day leads to an increase in VC investment between the city pair by 0.14 deals on average per year (1.08 times the mean value).
The heterogeneous analysis indicates that, with more air connections, emerging industries and firms in earlier developmental stages receive more investment, and non-syndication investment increases more than syndication investment.
The effect significantly increases with geographical distance: city pairs that are far away from each other experience a larger increase in VC flow after flight connections exist.
Most of this increase in capital flows happen in wealthier cities. Connections between poor cities show little effect on VC flow.
MIT Sustainable Urbanization Lab
Hong Lung Center for Real Estate, Department of Construction Management, Tsinghua University
School of Economics, Central University of Finance and Economics
Siqi Zheng, Liaoliao Duan, Weizeng Sun. “Global Air Network and Cross-border Venture Capital Mobility” Habitat International. 2020.