Sources of variation in regional economies

Abstract

This paper employs a vector autoregressive (VAR) methodology to examine the role of oil price shocks, defense shocks, national, and local shocks in explaining fluctuations in non-farm employment in a sample of ten states/MSAs in the US in the period 1969–2000. These include a sample of energy rich states and a sample of presumed beneficiaries of defense spending. Existing literature provides mixed evidence on the effects of defense shocks and oil shocks or does not focus on individual states. Results of this paper indicate that oil shocks and defense shocks have more pronounced effects at the local level than they do at the national level. An increase in the price of oil has a fairly large and for the most part statistically significant positive impact on the energy rich states and has a negative and statistically significant impact in the case of the Detroit-Flint MSA. When defense shocks occur they have a sizable impact on local economies that are beneficiaries of defense spending, even though their importance over the whole sample is not always significant. A key policy implication that emerges is that macroeconomic policy at the aggregate level may not be sufficient to uniformly stabilize regional economies that face oil, defense, and local shocks. Furthermore, to the extent that some of these states are linked more to their own local economies rather than to the US economy, they would have to rely more on local stabilization policies when faced with adverse local shocks. Copyright Springer-Verlag Berlin Heidelberg 2003JEL classification: R1,

Where Is an Oil Shock?

“…In contrast, our assumption that the world oil price is exogenous at the state level requires significantly less credulity. 4 We should note several papers that have investigated state or regional heterogeneity in the responses to oil-price shocks, although none is adequate for addressing our questions: Three have applied VARs to a handful of states and allowed for positive oil-price shocks only (Bhattacharya, 2003;Iledare and Olatubi, 2004;Penn, 2006). Others merely imputed state effects from industry-level results rather than looking at actual states (Brown and Yücel, 1995;Davis, Loungani, and Mahidhara, 1997), while still others have derived regional effects from measures of resource dependence (Brown and Hill, 1988).…”

Financial Education on Bank Lending and Economic Volatility in Taiwan

“…In addition, DeFina (1998, 1999) found little evidence in the credit channel effect of monetary policy transmission. Finally, Bhattacharya (2003) highlighted the significantly positive role of the oil price shocks in employment fluctuations in energy-rich states.…”

Local labor markets in U.S.–Mexican border cities and the impact of maquiladora production

“…VAR models that enlighten the transmission of shocks-along the lines of Dávila et al (2002) and Bhattacharya (2003)-are left for further work.…”

“…Second, the final model comes as a natural complement to the Blanchard and Katz (1992) approach to local labor markets in the two Texas border city-pairs studied: El Paso-Ciudad Juárez and Brownsville-Matamoros. This paper thus adds to the evidence on the roles of oil price, defence, local and national shocks in explaining employment at the city level by Bhattacharya (2003), for example. On population dynamics, the Texas Workforce Commission (2003) states that, out of the five metropolitan statistical areas (MSAs) that posted the highest annual growth rates during 2002, four (Brownsville-Harlingen, El Paso, Laredo and McAllenEdinburg-Mission) are located on the border.…”