| Abstract: | ABSTRACT One of the foundations of applied regional economics down through the years has been economic base theory (EBT). EBT presumes that economic activity within the basic sector unidirectionally causes economic activity in nonbasic sectors. In recent years, however, increasing attention has been given to the possibility that traditionally nonbasic activities (e.g., services) may be quite important in determining a region's total economic activity. In this paper, we examine the nature and direction of causality of economic activity within a regional economy. Using novel data on entry and exit of firms, the empirical analysis provides new insights into the strengths and weaknesses of traditional economic base theory. |
