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The Neoclassical Economic Base Multiplier

  • Peter G. McGregor
  • Eric P. McVittie
  • J. Kim Swales
  • Ya Ping Yin

In this paper we derive an analytical expression for the regional neoclassical economic base marginal employment multiplier. The model that we adopt is a variant of the 1-2-3 general equilibrium model used in trade analysis. Its specific neoclassical characteristics are that laborsupply is a positive function of the real consumption wage and that factor and product demands are price sensitive. We calculate the employment multipliers associated with both a demand and supply stimulus to the basic sector. We demonstrate that it is possible for the marginal economic base multiplier to take any positive or negative value. However, the value of the marginalmultiplier is likely to approximate the value of the conventional average multiplier the closer production and utility functions are to Cobb-Douglas specifications and the more elastic is the labor supply function. Copyright 2000 Blackwell Publishers inc.

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Article provided by Wiley Blackwell in its journal Journal of Regional Science.

Volume (Year): 40 (2000)
Issue (Month): 1 ()
Pages: 1-31

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Handle: RePEc:bla:jregsc:v:40:y:2000:i:1:p:1-31
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  1. E McVittie & J K Swales, 1999. "Sector-specific factor subsidies and employment in a regional price-endogenous export-base model," Environment and Planning A, Pion Ltd, London, vol. 31(12), pages 2145-2168, December.
  2. Devaragan, Shantayanan & Lewis, Jeffrey D. & Robinson, Sherman, 1990. "Policy lessons from trade-focused, two-sector models," Journal of Policy Modeling, Elsevier, vol. 12(4), pages 625-657.
  3. Kilkenny, Maureen, 1998. "Transport Costs and Rural Development," Staff General Research Papers 1185, Iowa State University, Department of Economics.
  4. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, March.
  5. Engel, C. & Rogers, J.H., 1995. "How Wide is the Border?," Papers 4-95-16, Pennsylvania State - Department of Economics.
  6. John Mutti, 1981. "Regional Analysis from the Standpoint of International Trade: Is it a Useful Perspective?," International Regional Science Review, , vol. 6(2), pages 95-120, August.
  7. Kilkenny, Maureen, 1998. "Transport Costs, the New Economic Geography, and Rural Development," Staff General Research Papers 1201, Iowa State University, Department of Economics.
  8. Rich Jones & John Whalley, 1986. "Regional Effects of Taxes in Canada: An Applied General Equilibrium Approach," NBER Working Papers 2107, National Bureau of Economic Research, Inc.
  9. Brown, Scott J. & Coulson, N. Edward & Engle, Robert F., 1992. "On the determination of regional base and regional base multipliers," Regional Science and Urban Economics, Elsevier, vol. 22(4), pages 619-635, November.
  10. A C Vias & G F Mulligan, 1997. "Disaggregate economic base multipliers in small communities," Environment and Planning A, Pion Ltd, London, vol. 29(6), pages 955-974, June.
  11. Mark D. Partridge & Dan S. Rickman, 1998. "Regional Computable General Equilibrium Modeling: A Survey and Critical Appraisal," International Regional Science Review, , vol. 21(3), pages 205-248, December.
  12. Greenwood, Michael J, et al, 1991. "Migration, Regional Equilibrium, and the Estimation of Compensating Differentials," American Economic Review, American Economic Association, vol. 81(5), pages 1382-90, December.
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