MEASURES OF DIVERSIFICATION: PREDICTORS OF REGIONAL ECONOMIC INSTABILITY*

This work focuses on determining which measure of regional economic diversification best explains differences in economic instability across regions. One recent article found that a portfolio variance measure had the highest explanatory power. Another researcher found that an entropy measure was best after the model was corrected for heteroscedasticity. Results presented here indicate that, after correction for heteroscedasticity, portfolio variance once again displays the greatest power to explain cross-sectional variation in observed regional instability.     

A STRUCTURAL DECOMPOSITION OF REGIONAL ECONOMIC INSTABILITY: A CONCEPTUAL FRAMEWORK*

ABSTRACT. Many rural regions are characterized by unstable economies. Studies that investigate economic instability in these regions, however, tend to examine the effects rather than causes of its occurrence. Efforts to diminish instability can only be successful if they address its sources. Using an input-output model, a conceptual decomposition of the variance of gross output is used as a means of identifying supply and demand sources of instability. This framework can be used for empirical investigations into the causes of economic instability, and for the design of stabilization policies. Data limitations, however, may preclude some applications of the technique.     

REGIONAL INDUSTRIAL STRUCTURE AND ECONOMIC GROWTH AND INSTABILITY*

ABSTRACT. National and regional employment patterns are subject to growth-instability tradeoffs. This paper applies the portfolio selection model to detailed employment data for the U.S. economy and selected states. Empirical results indicate that growth-instability trade-offs exist in a form not previously understood. The paper also identifies growth and stabilization potential by identifying stabilizing sectors.     

A NEOCLASSICAL ANATOMY OF THE ECONOMIC BASE MULTIPLIER*

ABSTRACT Keynesian export base theory ignores the supply side of the economy, while trade models may overemphasize resource constraints. A general equilibrium model which stakes out a position between those extremes is developed and used to define rigorously the components of an economic base (EB) multiplier. Capital moves freely in and out of the regional economy, but the factor land is fixed. Interregional labor movements are caused by wage differentials. Factor and relative commodity prices are determined endogenously. Demand and supply sides of a small regional economy are included. The relationship between average and marginal EB multipliers, and between key parameters (regional size, several elasticities, etc.) and the marginal multiplier are discussed. The Keynesian constant EB multiplier can be derived from a special case of the model.     

AGGLOMERATION AND REGIONAL COSTS OF LIVING*

ABSTRACT Standard models of the new economic geography predict that costs of living are lower in the core than in the periphery. But in reality they tend to be higher in agglomeration areas, mainly because of regional differences in housing costs. In this paper, we add a home goods sector to the seminal NEG model of Krugman (1991) . We show that a core–periphery structure can endogenously emerge in which the core is the more expensive area. This result has an important normative implication. Since higher costs of living imply falling real wages if there is no nominal wage premium, it is not desirable for everybody to live in the core region.     

THE INFLUENCE OF ECONOMIC DIVERSITY ON UNEMPLOYMENT AND STABILITY*

ABSTRACT. For many years, regional scientists, economists, and geographers have been unable to clarify the influence of economic diversity on unemployment and instability in regional economies of the United States, the United Kingdom, and Canada. This article presents plausible theory, proper units of analysis, valid measures, and more inclusive models of the diversity-stability relationship. The findings are generalizable because the sample includes most metropolitan areas in the U.S. The empirical analysis estimates the influence of diversity, employment concentrated in unstable industries, population size, growth rate, and control variables on unemployment and employment instability during the 1972–88 period. The results indicate that metropolitan areas which are more diverse experience lower unemployment rates and less instability than areas which are less diverse.     

INTERDEPENDENT BEHAVIOR WITH RELOCATION COSTS: THE COMPARATIVE STATICS OF SPATIAL HISTORY*

Relocation costs are a form of sunk costs because they are relevant to new entrants, not to agents at their existing locations. With sufficiently high relocation costs, initial (historically given) locations and other conditions determine the equilibrium assignment of agents to locations. Comparative static results depend on initial conditions, i.e., history matters and historical persistence can be characterized. The model suggests empirically-relevant results which can be tested by collecting data on relocation and transportation costs. For example, appropriate levels of these costs imply that suburbanization always occurs with the entry of new firms. Sequential entry strategies may be adopted by existing firms which earn pure profits. This may be contrasted with traditional NUE models which predict changes in the boundaries of central zones.     

THE ECONOMIC LAW OF MARKET AREAS: A FURTHER DISCUSSION*

ABSTRACT. The Economic Law of Market Areas, so named by Fetter, is concerned with the division of a territory between two competing centers. It is argued that this Law can be conveniently examined in terms of six cases, each of which is specified by a combination of differentials in freight rates and prices at the two centers. The locational significance of each case is considered, along with the form and dimensions of the market-area boundary between the two centers. Three of the cases are each shown to subsume a special case. It is further shown that for any case except one, a reversal of the differentials between the two centers, while resulting in a symmetrically-equivalent outcome, requires a different (and usually substantial) respecification of the case.