One of the most common features of regional econometric models is the specification of national variables as exogenous to the regional model. Often these variables appear as distributed lags in the structural equations. Concepts and tests for statistical causality can be used to determine whether this procedure is appropriate in a particular case. This paper discusses these tests and illustrates them with an example from a model being developed of the state of Indiana. It is our view that such tests can be a useful step in the specification of a regional econometric model.
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