1 / 14

Chapter 6 Structural Interrelations in the Local Economy

Chapter 6 Structural Interrelations in the Local Economy. Charles M. Tiebout The Community Economic Base Study. Economic Base & The Settlement System. Exports. The Region. Imports. Local Multiplier Effects. The Time Factor in Community Studies. Static vs. dynamic perspectives

ugo
Download Presentation

Chapter 6 Structural Interrelations in the Local Economy

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 6 Structural Interrelations in the Local Economy Charles M. Tiebout The Community Economic Base Study

  2. Economic Base & The Settlement System Exports The Region Imports Local Multiplier Effects

  3. The Time Factor in Community Studies • Static vs. dynamic perspectives • Short-run analysis vs. long-run analysis • The simple base model E = (1/1-alpha)EX • Assumptions: short-run analysis: 3 sectors: exports, local investment, local consumption • In the short-run, exports and local investment are “given” or fixed (time horizon : up to 2 years)

  4. The Local Consumption Sector – Short-run analysis • Resident spending on local consumption • Income earned by the local sales $ • The multiplier process for local consumption Income Change = (Change in Export + Investment Income) x (1/1-apcL x income/$ local consumption sales) Example: $1 x (1/1-.5*.4) = 1/(1-.2) = $1.25

  5. Assumptions: Long Run Analysis • Time horizon greater than 2 years • As exports change (grow), this leads to greater investment to support growth in output • Thus, investment becomes endogenous to the multiplier calculation: Income change = Change in Export Income x 1/(1-apcL x income/$ local consumption sales + apiL x income/$ local investment sales) Example: $1 x (1/(1-.5*.4+.2*.5)) = (1/(1-.2-.1) = 1/.7 = $1.43

  6. Local Consumption Sector Issues • (1) How closely related is local consumption to total local income • (2) Local consumption to total income ratios go up, go down, or we don’t know • (3) Empirical evidence proves these ratios are unstable • (4) The model does not allow for import substitution • (5) The ratio varies among communities

  7. Washington I/O Table ($ billions)Net industrial exports are roughly offset by imports to industries and categories of final demand (households, investment, and state and local governments) Imports to Consumption & Other F.D. 49.1 Industrial Imports Net Industrial Exports: 155.9-110.9 = 45.0 Industrial Exports

  8. What evidence to we have on local income to total income

  9. How has local consumption changed as income levels have changed?

  10. Unstable ratios?: Output Multiplier Correlations Correlation weakens with time

  11. Import Substitution? Mix of Overall PCE

  12. The behavior of other sectors • Local housing investment • Business investment • Local government investment • Local government current operations

  13. An Expanded Model • Expanded terms in the short-run model: private exports, exports to the federal government, local business investment, local housing investment, local government investment, local government operations; Entering the multiplier: apcL x income per $ of local consumption sales • Expanded terms in the long run model: exports private + to the federal government. Entering the multiplier: apcL x income per $ of local consumption sales, local business investment, local housing investment, local government investment, local government operations

  14. What are “Basic” Sectors? • “Basic industries are those whose level of activity is not clearly tied to the level of economic activity in the local community.” • In the short-run this can be activities except exports • In the long-run, exports are the fundamental force for regional growth/change • BUT: growth can come without expansion of exports: “the world has growth without exports to outer space”. Via productivity change that leads to growth in per capita income

More Related