international travel. In this respect, our study builds upon prior work. Our paper contributes to a small but growing literature that examines the implications of liberalization in international aviation markets. One branch of the literature has exploited the high quality data available for air travel involving US airports, and variation in the timing of US bilateral agreements.<sup>3</sup> This literature gives us a fairly nuanced understanding of the effects of the US agreements, including estimates of the effect of an agreement on the number of city pairs with direct flights. But the insights of this literature are related to the US market, and to the specifics of the agreements the US has signed. Another branch of the literature has used crosssectional variation in the level of policy commitments in agreements world-wide.<sup>4</sup> This literature offers an understanding of the effects outside the US, but there is not yet evidence on particular outcomes such as growth in the number of city pairs served by direct flights.

We extend the analysis and add to the existing literature in four different ways. First, we employ a rich cross-sectional dataset on origin-destination pairs worldwide that combines the extensive country coverage observed in prior studies with the city-pair level detail that has only been exploited in studies of the United States. This improved dataset acquired from the International Civil Aviation Organization (ICAO) allows us to expand our investigation beyond country-level gravity regressions. Second, our econometric analysis focuses not only on bilateral aviation agreements but also on plurilateral agreements. Third, we go beyond understanding the impact of aviation policy on air passenger flows and explore how liberalization affects the extensive margin of global aviation through the introduction of new direct services at city-pair level. Finally, we use the results of our model to derive counterfactual calculations and policy predictions.

> 3 Brueckner and Whalen (2000), Brueckner (2003), Whalen (2007), and Bilotkach (2007) employ US international data on true origin-destination city-pair air traffic to investigate the price effects of inter-airline strategic alliances and market competition following the signing of OSAs. Cristea et al. (2012) and Jia and Winston (2012) consolidate the various market responses associated with the liberalization of air passenger traffic into a welfare calculation. Micco and Serebrisky (2006) find that OSAs reduce air cargo freight rates by 9 percent and increase the share of US imports arriving by air by 5 percent after 5 years or more after the agreements enter into force.

> 4 Gonenc and Nicoletti (2001) and Doove et al. (2001) use factor analysis and information on a wide array of industry characteristics to construct aviation restrictiveness indexes. Piermartini and Rousova (2012), use information on 2300 bilateral Air Service Agreement (ASA) in force in 2005 among 184 countries to estimate the impact of air service liberalization on bilateral passenger flows.  They find that increasing the degree of liberalization between two countries from the 25<sup>th</sup> to 75<sup>th</sup> percentile observed in the sample increases total passenger traffic by approximately 18 percent.

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