Determinants of Local Multipliers

A key aspect of understanding how regions grow is the interplay between jobs in the tradable and jobs in the non-tradable sector. Jobs in the tradable sector supply the world market and can therefore move from region to region, but every region has a local demand for non-tradable goods and the size of the non-tradable sector is directly dependent on the size of the tradable industries. I analyse regions in different parts of the world and regions of different scale. I show that an exogenous increase in the number of jobs in the tradable sector of a region has a significant multiplier on the number of jobs in the non-tradable sector of that same region. This results holds for U.S. counties and European TL2 and TL3 regions. The size of the multiplier is significantly higher in the U.S. than in Europe and the size of the multiplier increases with the scale of the regions considered. Specifically I find multipliers of 1.12 and 1.10 for European TL2 and TL3 regions respectively. In a more detailed analysis of Sweden I find a local multiplier of 0.71. Finally I find a multiplier of 1.91 for United States counties. In short the increased employment in the tradable sector increases the total income in a region and therefore allows for more consumption by the local inhabitants. Depending on the preferences of the inhabitants this will increase demand for non-tradable goods and depending on the technology required to produce these goods, this will increase employment and wages in the non-tradable sector. Therefore the size of the local multiplier will depend on many factors, such as the type of new jobs in the tradable sector, the unemployment rate in a region and whether it is urban or rural. An accurate estimate of the size of the local multiplier is interesting academically, but it is also very useful for policy makers as they need to know the multiplier in the region they are designing policy for and the multiplier of the jobs they would like to attract.