Working Paper: NBER ID: w3291
Authors: Scott J. Brown; Edward Coulson; Robert F. Engle
Abstract: This paper tests for cointegration between regional output of an industry and national output of the same industry. An equilibrium economic theory is presented to argue for the plausibility of cointegration, however, regional economic forecasting using the shift and share framework often acts as if cointegration does not exist. Data analysis on broad industrial sectors for 20 states finds very little evidence for cointegration. Forecasting models with and without imposing cointegration are than constructed and used to forecast out of sample. The simplest, non-cointegrating models are the best.
Keywords: cointegration; regional economics; forecasting models
JEL Codes: C32; R11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lack of cointegration (C22) | flawed forecasting models (C53) |
| model specification (C52) | forecasting accuracy (C53) |
| shocks to regional economies (F69) | long-run adjustment towards national average (F29) |
| regional output in individual states (R15) | national output in the same sector (E23) |