Service sector development in a hierarchy of central places : a regional analysis of seven southern states

Review of the service sector literature reveals a considerable lack of theoretical and methodological foundations pertaining to regional (and national) service sector development. This study is based on a regional economic model designed to analyze the role of spatial effects on regional service sector development. The synthesis of such a model represents a coupling of accepted microeconomic theory, regional economic theory, and the major theoretical elements which have been addressed in the service sector literature singularly, but not as a cohesive whole.

In the model, the service sector is not assumed to be homogeneous, but rather categorized into meaningful industry groupings. The service sector is divided into three mainly producer and three mainly consumer service categories of industries. The functional specifications incorporate the microeconomic distinction between the derived demand for producer services and direct demand for consumer services. A separate equation is derived for each of these service sector categories allowing differentiated impacts on sectoral growth to be honed down to those specific to each type of service.

The coupling of microeconomic theory with the regional methodology of central place theory form a powerful combination for an analysis of service sector development. Thus, after accounting for fluctuations in the national economy, the scale, density, and intensity of demand is estimated given local commercial and/or socioeconomic attributes for analysis of the effects of space and place scale. Characteristics of the central places, lower order places, and hinterlands are incorporated into the analysis by defining four strata of places and estimating separate equations for each. The hierarchical nature of central place theory is evident in the functional specification of demand for services in central places being a function of local characteristics, those of lower order places and those of its hinterland. Conversely, the hinterland represents those places lower in the hierarchy producing services as a function of local characteristics but also affected by associated higher order places. These linkages enable the determination of spatial impact.

These elements are incorporated into this study using pooled cross section and time series regression analysis on BEA economic area data from Alabama, Georgia, Kentucky, Mississippi, North Carolina, Tennessee, and Virginia for the period 1970-1989.