Empirical Regional Economics: Economic Base Theory, Models and Applications PDF
Preview Empirical Regional Economics: Economic Base Theory, Models and Applications
Springer Texts in Business and Economics Richard S. Conway Jr. Empirical Regional Economics Economic Base Theory, Models and Applications Springer Texts in Business and Economics Springer Texts in Business and Economics (STBE) delivers high-quality instruc- tionalcontentforundergraduatesandgraduatesinallareasofBusiness/Management Science and Economics. The series is comprised of self-contained books with a broadandcomprehensivecoveragethataresuitableforclassaswellasforindividual self-study. All texts are authored by established experts in their fields and offer a solid methodological background,often accompanied by problems and exercises. More information about this series at https://link.springer.com/bookseries/10099 Richard S. Conway Jr. Empirical Regional Economics Economic Base Theory, Models and Applications 123 Richard S.ConwayJr. DickConway andAssociates Seattle, WA,USA ISSN 2192-4333 ISSN 2192-4341 (electronic) SpringerTexts inBusiness andEconomics ISBN978-3-030-76645-0 ISBN978-3-030-76646-7 (eBook) https://doi.org/10.1007/978-3-030-76646-7 ©TheEditor(s)(ifapplicable)andTheAuthor(s),underexclusivelicensetoSpringer NatureSwitzerlandAG2022 Thisworkissubjecttocopyright.AllrightsaresolelyandexclusivelylicensedbythePublisher,whether thewholeorpartofthematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseof illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmissionorinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilar ordissimilarmethodologynowknownorhereafterdeveloped. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfrom therelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained hereinorforanyerrorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregard tojurisdictionalclaimsinpublishedmapsandinstitutionalaffiliations. ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland To my family, colleagues, and mentors. Preface Empirical Regional Economics: Economic Base Theory, Models and Applications is an introduction to the field of regional economics for juniors, seniors, and graduate students majoring in economics, business, and geography. It should also appeal to anyone in the private or public sector who has an interest in gaining a better understanding of regional economic behavior and the practical methods of regional economic forecasting and analysis. The book is based on a course (Economics 406: Topics in Applied Regional Economics) that I taught as an instructor in the University of Washington Department of Economics. The material is drawn from my fifty-year career as a researcher and consultant specializing in regional economic forecasting and analysis. While earning a living as a private economist (Dick Conway and Associates, 1977–2017, and Conway Pedersen Economics, Inc., 1993–2017), I have managed tokeeponefootinacademia.OthercoursesIhavetaughtincludemacroeconomics, regional analysis, and global trade, transportation, and logistics. I have published nineteenarticlesinregionaleconomicjournalsandbooksandservedformorethan twenty years on the editorial boards of the Journal of Regional Science and the InternationalRegionalScienceReview.Fortwenty-fiveyears,DougPedersenandI published The Puget Sound Economic Forecaster, a quarterly forecast and com- mentary on the Puget Sound economy. The newsletter was sold to the Center for Economic and Business Research, Western Washington University, in 2017. Ihaveaparticularinterestinregionaleconomicpolicy.Earlyinmycareer,Iwas principalconsultanttotheWashingtonStateEconomicDevelopmentBoard,which was charged with preparing a long-term economic strategy for the state. Subse- quently, I served 33 years as a member of the Washington Governor’s Council of EconomicAdvisors.IhavealsoparticipatedontheWashingtonStateTaxStructure Study Committee and the Washington State Economic Climate Study Advisory Board. As the title indicates, the book has an empirical orientation. With degrees in engineering,business,andregionalscience,Ihavecome toappreciate thevalueof observation and testing in trying to explain regional economic behavior. Theory, specificallytheeconomicbasetheoryofregionalgrowth,playsanimportantrolein this study, but it is only a starting point. vii viii Preface Asafinalnote,EmpiricalRegionalEconomicsfocusesonWashingtonstateand thePugetSoundregion.Therearethreereasonsforlimitingthegeographicalscope ofthebook.First, thisiswhatIknow,sinceSeattleiswhereIhavespentvirtually allofmyprofessionalcareer.Second,WashingtonandthePugetSoundregionhave a long and rich history of modeling, forecasting, and analysis, which has yielded manyinsightsintoregionaleconomicbehavior.Third,myworkinotherpartsofthe United States, involving such diverse economies asOregon, Nebraska, Minnesota, Illinois,Hawaii,AmericanSamoa,andtheCommonwealthoftheNorthernMariana Islands,hasconvincedmethatthelessonslearnedfromtheWashingtonandPuget Sound economies generally apply to other regions. Since this book isprimarily a textbook, a website has been designed to provide additional material for classroom use. It includes regional economic newsletters, case studies, and reports related to the book. The articles are selected to stimulate thought and discussion among the students. The URL of the website is www. empiricalregionaleconomics.com. Seattle, USA Richard S. Conway Jr. Contents Part I Regional Economic Base Theory 1 Economic Base Theory of Regional Growth . . . . . . . . . . . . . . . . . . 3 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.2 Economic Base Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3 The Economic Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.4 Location Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.5 Dynamics of the Economic Base . . . . . . . . . . . . . . . . . . . . . . . 13 1.5.1 Rural and Urban Development . . . . . . . . . . . . . . . . . . . 13 1.5.2 Future of Rural America. . . . . . . . . . . . . . . . . . . . . . . . 16 1.6 Final Word. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.7 Questions and Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2 Economic Base Theory Empirical Evidence . . . . . . . . . . . . . . . . . . 23 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.2 Exports and Regional Growth . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.3 Employment Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.4 Mobility and Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.4.1 The Washington Experience . . . . . . . . . . . . . . . . . . . . . 31 2.4.2 A National Perspective. . . . . . . . . . . . . . . . . . . . . . . . . 37 2.5 Regional Economic Cycles . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2.6 Open Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.7 Final Word. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 2.8 Questions and Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Part II Regional Economic Models and Applications 3 Economic Base Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3.2 Dual Roles of the Washington Aluminum Industry. . . . . . . . . . 51 3.3 State Economic Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ix x Contents 3.4 County Economic Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 3.4.1 Klickitat County, City of Goldendale, and the Goldendale Aluminum Company . . . . . . . . . . . 54 3.4.2 Simple Economic Base Model and Impact Analysis. . . . 56 3.4.3 Complex Economic Base Model and Impact Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 3.5 Final Word. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 3.6 Questions and Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 4 Input–Output Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 4.2 Washington Input–Output Studies . . . . . . . . . . . . . . . . . . . . . . 76 4.3 Input–Output Model and Analysis . . . . . . . . . . . . . . . . . . . . . . 76 4.3.1 Input–Output Accounting Framework . . . . . . . . . . . . . . 76 4.3.2 Input–Output Model. . . . . . . . . . . . . . . . . . . . . . . . . . . 77 4.3.3 Basic Steps of Input–Output Analysis . . . . . . . . . . . . . . 78 4.4 1972 Washington Input–Output Study . . . . . . . . . . . . . . . . . . . 82 4.4.1 Construction of Input–Output Table . . . . . . . . . . . . . . . 82 4.4.2 Input-Output Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 4.4.3 Input–Output Multipliers . . . . . . . . . . . . . . . . . . . . . . . 90 4.5 Impact Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 4.5.1 Impact Analysis Considerations . . . . . . . . . . . . . . . . . . 93 4.5.2 Seattle Mariners Economic Impact . . . . . . . . . . . . . . . . 94 4.6 Final Word. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 4.7 Questions and Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 5 Interindustry Econometric Model . . . . . . . . . . . . . . . . . . . . . . . . . . 111 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 5.2 Model Specification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 5.3 Selected Equations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 5.3.1 Personal Consumption . . . . . . . . . . . . . . . . . . . . . . . . . 115 5.3.2 Private Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 5.3.3 State and Local Government. . . . . . . . . . . . . . . . . . . . . 118 5.3.4 Industrial Output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 5.3.5 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 5.3.6 Personal Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 5.3.7 Population. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 5.4 Forecasting Accuracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 5.4.1 Long-Range Prediction Errors. . . . . . . . . . . . . . . . . . . . 126 5.4.2 Structural Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
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