Spatial autocorrelation in employment-output relation

This study reconsiders the employment-output relation in Finland from a spatial econometric perspective. Spatial econometric methods provide new insights on the regional employment-output relation. They make it possible to examine whether output growth or employment growth in neighboring regions affects employment growth in a particular region. Especially, the interest in this study is aimed at the Finnish growth centers? (the capital region Helsinki, Turku, Tampere, Oulu and Jyväskylä) impacts on their neighborhoods, which is related to the regional economic theories on agglomeration economies and spillover effects. There is inter-action in trade, capital flows, migration and in diffusion of innovations and knowledge. Thus, it makes sense to consider the employment growth in regions as dependent on other regions and interactive with them. NUTS4-level output and employment data from 1988 to 2000 are used in the analyses. The investigation period includes the era of rapid employment growth of the late 1980s, a dra-matic decline in employment and output in the early 1990s and the years of a recovery in the mid 1990s. The whole period is divided in five groups: 1988-1990, 1990-1993, 1993-1996, 1996-1998 and 1998-2000. Regional development in Finland separated during the years after the recession - rapid growth was concentrated on few centers while growth in many regions remained still very slow, even negative. In addition, it has been argued that economic growth produced more employment before the recession than has been doing after it. A basic cross-sectional model and three spatial dependence models (a spatial error, a spatial lag and a spatial cross-regressive model) for the employment-output relation are formed in different periods and compared with each other. The results received by the data on the growth centers and their neighbors are also compared with the results received by the whole data. It is investigated whether there are differences in the employment-output relation be-tween the growth centers and the whole country and whether spatial dependencies in the rela-tion are different in the growth centers and their neighborhoods than elsewhere. In addition, the local Moran analysis for spatial autocorrelation both in employment and output variables is carried out. This measure provides insights into possible high growth or low growth clus-ters and into developments of these clusters during the time.