A model of local sector growth in the South

The purpose of the study was to test various theories of regional growth through the use of an econometric model. Specifically, tests were made in the study to determine whether the economic base model is effective in the determination of long run impacts, given that such factors as supply constraints, aggregate regional demand, and interregional demand are only implicitly incorporated in the regional multiplier.

Using a pooled time-series cross-section of BEA economic area data, equations were estimated in a modified economic base framework for seven local sector industry groups. Independent variables in the regression analysis included measures of inertia, disaggregated basic activity, interindustry linkages, region size, labor market tightness, capital cost and availability, national economic conditions, and spatial factors. This exercise was carried out, in part, to gain evidence as to the factors that have been important in local sector employment growth and, also, to provide a framework for the testing of the economic base model.

It was found in the regression analysis that local sector economic activity adjusts rather quickly to changes in basic activity and other factors. In addition, the regression analysis demonstrated that elasticities can be estimated for particular basic industries, while at the same time incorporating variables measuring other growth factors as well. Within the framework of the estimated equations an employment multiplier was calculated by holding region size and other factors constant. These factors were then varied to examine the impact on the calculated multiplier. It was found that the simple multiplier model is sensitive to the size of a region and other factors and, thus, it was concluded that a regional growth model is called for that incorporates growth measures other than simple measures of basic activity.