1. Use HW3.xlsx, EBM to answer this question. Economic Development agencies often attempt to target particular industries in an effort to help rural areas growth, in particular, targeting those sectors that support the rural economy. Doing so requires some analysis of the rural economy. Suppose the Ne
aska Department of Economic Development is interested in identifying such sectors for the southwestern Panhandle region of the state. See the map below.
In EBM, both employment and output data has been collected at the state and panhandle region.
a. Use the Economic Base Model to identify sectors that comprise the panhandle’s economic base by using the employment data. Determine what the total Basic employment level is AND what the Economic Base Multiplier is. How many additional jobs will the region experience if Basic employment increases by 500 jobs?
. Next use the Economic Base Model to identify basic sectors for the panhandle by using the output data. Which sectors (if any) does the model using the output data indicate as Basic that the model using employment data does NOT indicate as Basic? Using your economic intuition, what might these results be suggesting about these sectors? (hint, think about productivity…output per worker).
Save your Excel file.
2. Use HW 3.xlsx, Shiftshare to answer this question. Reconsider the Panhandle region from a shift-share perspective. Use the data provided to determine which industries that region has a competitive advantage.
a. Out of over 400 sectors, how many are competitive? List those sectors below.
. Given the number of competitive industries, how might you assess the economic prospects for this region? Why (
iefly explain your reasoning)? (For this last question, there are a number of good responses…I’m mostly interested in how you support your assessment – that said, don’t stray too far from your model results ).
Save your Excel file.
3. In HW 3.xlsx LV Samsung and iphones, there is data on global sales (shipments) of Samsung Galaxy and iphones from 2010:1 To 2019:4. This data came from Statista (you have access to this data through the UNO li
ary). I seasonally adjusted the data and converted it to billions of units sold per quarter.
Use a Lotlka-Volte
a equation system to study the competitive behavior of these two firms based on the data provided. Follow procedures in the Unit 8 videos. Forecast these shipments using your estimated parameters for the period 2020:1 to 2023:4. Who appears to be winning?
Once you do this, address the following. Do they compete? Is there a Predator-Prey relationship and if so, who’s the predator and who’s the prey? Do they cooperate to their mutual advantage? Support your answer.
Once you determine the answer to the type of competition, see if you can develop a rationale for what your model is telling you (no single right answer here…I’m just trying to see how you are thinking about the results).
Save your Excel file.
4. Essay. When comparing National with Regional Input-Output models, the issue of “leakages” often comes up. Explain below (type please and be
ief), what a “leakage” is. Also explain the impact that a leakage has on an economy’s multipliers and what this means for measure of economic impact. (limit your response to one or two paragraphs and keep it to less than a page in length).
Save your files and turn both in on Canvas.
Chapter 2
Unit 6: Regional Economic Analysis and Economic Impact
Unit 6 – Regional Analysis EBM and Shift Share.xls
Unit 6 – Export Shift Share.xls
Unit 6 – IO.xls
Economic Base Theory and Practice
Shift-share Models and Regional Growth
Shift-share model for international export analysis
Economic Impact Models
*
Regional Economics
Economic Base Theory
Economic Base Theory
Economic Base Theory – Formal Model…
Formal Model…
Let consumption vary with income:
C = bY
= marginal propensity to consume out of Y
Monetary Inflows from selling exports:
MI
exogenously determined export income
Monetary Outflows from buying imports:
MO = iY
i = marginal propensity to spend on imports
Formal Model…
Operationalizing the Theory
Operationalizing the Theory
The Export Base Multiplie
Operationalizing the Theory
So how do we determine what the Basic Industries are?
LQs
LQs
As a general rule: If an LQ is greater than 1, then it is considered Basic
Idea: if an industry in a region has an employment share bigger than the larger economy’s, then it is presumed that the region is producing more in that region than local residents require. Therefore much of that production is exported out of the region
LQs and Economic Base Analysis
Shift-Share Model
Suppose we are interested in industry and regional employment growth over the XXXXXXXXXXperiod
The shift-share equation is as follows. For an employment change for industry i in region j:
ΔEij = {Eij2009(US2019/US2009 – 1)}
+ {Eij2009(USi2019/USi2009 – US2019/US2009)}
+ {Eij2009(Eij2019/Eij2009 – USi2019/USi2009)}
Shift-Share
Terms in the {..}s of the equation:
First term: Share component
Is the nation growing or shrinking?
Second term: Mix component
Is the industry relative to the nation growing or shrinking
Third term: Competitive component
Is the regions industry growing faster or slower than the national industry
Shift-Share Example
Consider the data below
Let’s calculate the shift-share components in Excel and address what the numbers tell us about this city’s economy
Ne
aska Shift Share
Here we try to determine if an economy’s export growth is due to
The industries it has that are exporting
The countries it exports to
Some other local (export competitive) factors
It’s a very useful modeling tool as states
try to increase domestic growth though international trade
Determine how national trade policies can impact the local economy
Shift-share and export analysis
The Model….
The Model
Suppose we have data for the period 2015 (t) to 2019
The shift-share equations are as follows:
The Model
Impact Analysis
How do we assess, measure, and strategize about the economic impact of industries, events, or other activities within a regional economy?
Impact of the College World Series on Omaha
Impact of a new poultry processing plant in Eastern Ne
aska
Impact of Epply Airport on the city and state,
Etc.
Input Output Model
Theory of IO: Start with the Circular Flow View of an Economy
Businesses
Households
Goods & Services
Consumption Spending
Labor, Capital
Wages & Salaries
Circular Flow View of an Economy
Businesses
Economic Impact – Measuring Consumption Spending through the circular flow….
Direct injection
Households
Goods & Services
Consumption Spending
Labor, Capital
Wages & Salaries
IO Model
The IO model is centered on the idea of inter-industry transactions:
Industries use the products of other industries to produce their own products.
For example - automobile producers use steel, glass, ru
er, and plastic products to produce automobiles.
Outputs from one industry become inputs to another.
When you buy a car, you affect the demand for glass, plastic, steel, etc.
IO and Circular Flow of an Economy
Businesses
IO – Business-to-Business Transactions
Direct injection
Households
Goods & Services
Consumption Spending
Labor, Capital
Wages & Salaries
Businesses
IO Models
To better understand the mathematics here, consider a small IO model of a given economy
Suppose 3 sectors: electric power production, coal production, and chemical production
(Technical note)
This example is what is refe
ed to as an “open” IO model
Simply put, it’s one where both final demand and productive inputs (like labor) are determined outside the model simulation
There is something called a “closed” IO model – it’s more complex.
For example, household income (from labor supplied) – a portion of final demand, is endogenous.
IO Models
Below is a simple “transactions table” describing our economy….
Tables like this one do exist at various levels of detail
Based on real world survey data
IO Models
Each column represents a Leontief (fixed proportions) production function
It’s like the supply side of the model
How to make what we want to make
Each cell in each column (excluding the total) tells us how much it takes from a given industry to produce one dollar’s worth of output from a given secto
So, e.g., it takes 40 cents from the coal sector to produce one dollar’s worth of electricity
IO Models
Each row represents how much output from each sector is required by other sectors
It’s like the demand side of the model
Consider coal. The data tells us that 40 cents worth of every dollar’s worth of coal production must go to meet the needs (demands) of the electricity production secto
By looking at the rows for our data (matrix), we can depict how much production from each sector will be necessary to meet demand in our economy
IO Models
The shaded 3x3 matrix in our table is often called the “direct requirements matrix”
It is critical to our analysis
Let’s call this matrix A:
IO Models
Let’s assume that our best forecast for next year’s economy is that
Consumers will demand $100 million in electric power (E) – again this is final demand
$30 million in coal (Cl) – final demand
$40 million in chemicals (Ch) – final demand
Let Y be the co
esponding a
ay of final demand:
IO Models
In order to meet this demand, it must be the case that the following conditions be met
IO Models
Putting this in matrix form…letting x’=[E,Cl,Ch]…
IO Models
After a little bit of matrix alge
a, we have (note, I is the 3x3 identity matrix….)
The matrix (I-A)-1 is refe
ed to as either the “multiplier matrix” or the “Leontief inverse matrix”
It will be comprised of elements that are positive and many will be greater than one
The result: x will be much larger than our initial set of Ys.
IO Models
After some alge
a (again, inverting the 3x3 matrix is cumbersome), we have
Therefore, we would forecast next year’s production of electricity, coal, and chemicals to be $179 million, $131.6 million, and $84.2 million, respectively.
For each sector, this is called “Gross Output”
IO Models
Why are these levels so much larger than our original demand levels?
The multiplier effect:
With increased demand for, say, electricity, electricity suppliers need to buy more coal and chemical inputs. This increases demand from these sectors (an indirect effect). Thus, these sectors demand more electricity, and so on and so on……
IO Models
Now this multiplier effect is very useful from a simulation perspective.
Suppose we wanted to know what would happen if consumer demand were $200 million next year instead of $100 million?
In effect, what is the impact of a $100 million increase in consumer electricity demand.
Let’s use our IO model to find out….
IO Models
Notice that we have…..
Notice that we essentially have our first column of our (I-A)-1 matrix multiplied by 100.
If we summed our x a
ay, we’d have $261.3 million. What does this mean?
IO Models
To see the implication, suppose we summed the first column in our matrix, we’d have 2.613.
This says that for every $1 increase in consumer demand for electricity