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Sector-Specific Factor Subsidies and Employment in a Regional Price-Endogenous Export-Base Model

Listed author(s):
  • E McVittie

    (Plymouth Business School, University of Plymouth, Drake Circus, Plymouth, Devon PL4 8AA, England)

  • J K Swales

    (Fraser of Allander Institute, Department of Economics, University of Strathclyde, Curran Building, 100 Cathedral Street, Glasgow G4 0LN, Scotland)

In this paper we use a variant of the 1–2–3 trade-focused general-equilibrium model to calculate the employment effects of factor subsidies applied to the regional export base. Analytical expressions are derived for the change in basic employment and the export-base employment multiplier. These expressions are compared with the conventional hybrid approach where the impact on the recipient sectors is analysed by using a partial-equilibrium method and the effect on other sectors is calculated through some form of demand-driven multiplier. The conventional hybrid procedure fails to capture fully displacement in the regional labour market. If we use the general-equilibrium results as a benchmark, numerical simulation suggests that the hybrid approach substantially overestimates the employment effects of the subsidies. Similar problems are likely to apply to the evaluation of all supply-side policies targeted on the regional export base.

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File URL: http://epn.sagepub.com/content/31/12/2145.abstract
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Article provided by in its journal Environment and Planning A.

Volume (Year): 31 (1999)
Issue (Month): 12 (December)
Pages: 2145-2168

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Handle: RePEc:sae:envira:v:31:y:1999:i:12:p:2145-2168
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