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The University of Illinois at Urbana-Champaign

Regional Economics Applications Laboratory

Abstracts of Discussion Papers: Policy Series

(Note: Only those published since 1993 are currently available, 1995 papers are not available)


A Comparison of US Interstate Migration Behavior Among the Hispanic Population Between 1985 and 1990
Matthew Foulkes and K. Bruce Newbold (January, 1998)

Abstract: This paper compares the US internal migration behavior of Cubans, Mexicans and Puerto Ricans between 1985 and 1990. Using the 5% PUMS from the 1990 Census, both aggregate migration streams and micro-level migration propensities are estimated for each Hispanic population group. The effects of personal factors, the economic context and the presence of fellow nationals are compared across nationalities. While some factors such as age, sex, employment growth and the presence of co-ethnics affect migration behavior in similar ways across nationalities, there are notable differences in the way education, English fluency and the unemployment rate affect migration propensity. Some of these differences are attributable to the differing immigration histories and geographic distributions of these groups. The results demonstrate the heterogeneity of migration behavior among Hispanic nationalities and suggest the need to recognize such diversity in future migration studies.

Eduardo Haddad and Geoffrey J.D. Hewings

Abstract: In this paper, the national strategies for increasing international competitiveness in the Brazilian economy are examined. An interregional computable general equilibrium (ICGE) model is used to analyze the long-run regional effects of structural policies, represented by the simulation of the effects of an increase in the total factor productivity in the transportation sector, assessing the impact of the improvement of the transportation infrastructure component of the so called Custo Brasil ­ the cost of doing business in the country. Transportation services and the costs of moving products based on origin-destination pairs are explicitly modeled. The model is calibrated taking into account the specific transportation structure cost of each commodity flow, providing spatial price differentiation, which indirectly addresses the issue related to regional transportation infrastructure efficiency. A simulation was carried out in which a regional-output-equivalent shock in total factor productivity was considered; the asymmetry of the results, which embeds the fact that the policy impacts in various regional markets differ, suggests that regional inequality is likely to increase, as this policy favors the more developed region of the country.

Eduardo Haddad and Geoffrey J.D. Hewings

Abstract: With a greater commitment to market forces in the recent years, the Brazilian federal government is left with fewer options to manipulate growth of the less developed regions of the country. Thus, private investments play a key role in the process of regional development. New investments in the Brazilian automobile industry are being sought by the regions in a strong competition for the incoming capital through fiscal incentives. One of the issues that concern labor unions refers to the production technology embodied in the incoming capital, which is claimed to be accompanied by sharp reductions in the employment levels. In this paper, the regional impact of the new investments in the automobile industry is evaluated through the use of an interregional computable general equilibrium model. Attention is directed to employment estimates and the impacts on regional inequality. The simulation results for the short-run show that: a) the employment effects of the labor-saving technology in the automobile industry are positive for the economy as a whole; and b) even though investments in the less developed region (Northeast) are more beneficial to the improvement of regional imbalances in the country, in terms of efficiency, investments in the Center-South generate higher national economic growth.

Geoffrey J.D. Hewings, Philip R. Israilevich, Graham R. Schindler, and Michael Sonis

Abstract: The identification of structural changes in the Chicago economy over the period 1970-1990 is explored using alternative measures. In particular, attention is paid to the identification of clusters and how they changed over this period, a period in which the region's economy witnessed a massive shift in focus away from manufacturing to service dominance. The interpretation of these changes is provided, focusing on a triple decomposition into the portion that can be explianed by changes in business practices, changes in labor productivity and changes in final demand. It is shown that, for manufacturing, changes in business practices dominate; included here are changes in technology as well as important changes in the geography of sales and purchases relationships. By the end of the period, 1990, agglomeration effects seemed to be transformed from a metropolitan scale to one that encompassed the Midwest.


Review of New Trade Theory and its Relevance for Interregional Modeling
Darla Anderson (March, 1997)

Abstract: The flows of goods and services between regions within a country is subject to many of the same forces that govern similar flows between countries in the international arena. While there have been some early attempts to explore similarities and differences, absence of data for interregional flows severely limited the ability of analysts to test propositions developed for international trade. Since the objective of this research project is to assemble the relevant data, a more careful review of what is now labeled as the New Trade Theory has been undertaken and the major findings are presented in this report..
Traditional international trade theory is based on the notion of comparative advantage. Countries with different factor endowments, according to such theories as the Hecksher-Ohlin model, specialize in the production of certain goods and thus have incentives to trade. The opening of trade leads to factor price convergence and increased welfare for the consumers of the trading countries. In recent years, work has been done to amend this traditional theory. In particular, the Hecksher-Ohlin model did not explain the enormous amount of trade taking place between very similar economies, intrafirm trade, and the importance of Foreign Direct Investment in the world economy (Helpman and Krugman, 1985, p. 3); thus, alternative explanations have been offered.
In addition, recent work in industrial organization theory has brought market structure into question as a determining factor in trade. The result of these explorations has been a mixture of a few slightly different theoretical directions lumped under the name "new trade theory". The focus of this paper will be to highlight the theoretical underpinnings of this theory, with special attention to issues of endogenous technological development and welfare effects. Then, some current trends in the literature will be discussed. Throughout the paper some inferences regarding the applicability of international trade theory to more regional models will be made

Returns to Scope, Returns to Trade and the Structure of Spatial Interaction in the US Midwest
Geoffrey J.D. Hewings, Philip R. Israilevich, Yasuhide Okuyama, Darla K. Anderson, Graham R. Schindler, Matthew Foulkes and Michael Sonis (October, 1997)

Abstract: With the increasing attention directed towards issues surrounding international trade agreements, relatively limited attention has been given to the role of interstate trade. In this paper, the development of interstate trade estimates for a six-region division of the US is described and interpreted. The implications of these findings together with those obtained in Japan, Europe and Indonesia are used as the basis for the development of a conceptual theory about the changing role of trade and spatial economic development. Trade within the five-state Midwest block in commodities alone approaches intercountry trade within NAFTA in volume terms; on average 34% of commodity exports from an individual state go to other parts of the Midwest while almost 39% of the imports are derived from the same region. The state economies have similar relative sector distributions of activity yet there are some differences in the internal structures of exchange. Trade is dominated by intraindustry rather than interindustry flows reflecting Krugman's expectations for mature, relatively wealthy economies with few significant differences in natural endowments.

Free Trade and Transportation Infrastructure in Brazil: Towards an Integrated Approach
Paulo Resende, Joaquim J.M. Guilhoto, and Geoffrey J.D. Hewings (October, 1997)

Abstract: In the development of models analyzing the impacts of free trade agreements between countries or regions within countries, relatively little attention has been paid to potential limitations imposed by transportation infrastructure. In free trade blocks such as those represented by the European Union or the USA and Canada part of NAFTA, the implicit assumption of little or no impact imposed by transportation infrastructure may be justified. However, in the case of MERCOSUR in South America, this assumption may need to be challenged. In this paper, an illustration of a potential approach to this problem will be illustrated with reference to Brazil. Attention will be devoted to the way in which the potential gains from free trade within MERCOSUR were mapped onto a transportation network to identify the creation of additional bottlenecks and to explore opportunities for multi-modal operations and mode transfer to help realize the gains from trade.

Trade and interdependence in the economic growth process: a multiplier analysis for Latin America
Eduardo Haddad, Geoffrey J. D. Hewings and Michael Sonis (November, 1997)

Abstract: This paper illustrates alternative methodological approaches to the issue of trade and interdependence in the economic growth process with a focus on the countries of Latin America, drawing inspiration from earlier contributions by Machlup, Goodwin and Miyazawa. The World economy is divided into two main blocks of countries (Latin America and a selection of developed economies) with the rest of the world forming an aggregated third block. A time series of trade matrices for the period 1978-1991 have been constructed to explore the degree to which changes in one country spill-over to the rest of the world and the degree to which the changes are symmetric or asymmetric. The approaches reveal that important insights into trade structure can be obtained, insights that will prove of value in the rapidly changing trade regimes of the current and next decades.

Decentralization and Income Distribution in the Interregional Indonesian Economy
Budy P. Resosudarmo, Luky Eko Wuryanto, Geoffrey J.D. Hewings and Lindsay Saunders (December, 1997)

Abstract: In the current debates on the efficiency of decentralization, less attention has been directed to issues surrounding income distribution. In this paper, the relationship between income distribution and decentralization is addressed directly in the context of the Indonesian economy. Drawing on a micro-macro cge model for Indonesia, two regions - Java and Outside-Java - are identified at the macro level while seven micro regions (three in Java and four in the other region) are specified. Fifteen production sectors, two factors and a detailed government accounting block complete the model. The various decentralization options are considered in the context of block and specific grants from the central government to the regions. In general, the results point up modest efficiency gains from decentralization; the underlying nature of the economic structures within the regions make it very difficult to forge any significant movement towards goals of greater income inequality through decentralization policies.


Economic Impacts of an Unscheduled Event: A Miyazawa Multiplier Analysis
Yasuhide Okuyama, Geoffrey J.D. Hewings and Michael Sonis (April, 1996)

Abstract: In this study, the impacts of the Great Hanshin Earthquake are evaluated and analyzed utilizing an interregional input-output model for Japan. The focus of attention is on consumption-interindustry linkages, using a Miyazawa framework to reveal the linkage between output generation and income formation both within and across regions. Sensitivity analysis is employed to reveal the degree to which the impact results vary according to parameter values derived from estimates of the direct damage.

[Printed in: Journal of Applied Regional Science 2:79-93 (1997)]

A Review, Evaluation, and Strategy for Regional and Interregional Modeling in Indonesia
Geoffrey J.D. Hewings (December, 1996)

Abstract: A review of a wide range of models developed and applied at the regional level in Indonesia is made to provide the basis for an evaluation and proposed strategy for future model development. For the most part, models have not enjoyed significant credibility on the part of policy makers; a brief guide to some important strategic needs is presented together with some recommendations on the types of models that might be developed or modified.

Geoffrey J.D. Hewings, Graham R. Schindler and Philip R. Israilevich (December, 1996)

Abstract: In this paper, an attempt is made to establish a relationship between airport capacity and economic development in the Chicago metropolitan area. Formulating a quantitative link between infrastructure and development has proven difficult; in the analysis adopted in this paper, an association between employment growth and airport enplanements is used to provide the link. The employment data are then fed into an econometric-input-output model of the region's economy to assess the impact of future capacity limitations on employment growth, income and gross output in the Chicago region over the period 2001 through 2018. the capacity is assumed to be disembodied (i.e., there is no prior assumption about expansion of existing facilities or the creation of a new, third airport). The results indicate that without additional capacity, employment losses (jobs that would otherwise have been expected to locate in the region) would amount to 84,000 in 2001 (2.24% of estimated jobs for that year), rising to 522,000 in 2018 (11% of jobs). In income terms, the losses amount to 13.6% of total income in 2018 and gross output (the volume of goods and services produced) would be reduced by 16% in the same year.
[Printed in: Journal of Infrastructure Systems, 3: 96-102 (1997)]


Linkages, Key Sectors and Structural Shange: Some New Perspectives
Michael Sonis, Joaquim J.M. Guilhoto, Geoffrey J.D. Hewings, Eduardo B. Martins (April, 1994)

Abstract: Recent exchanges in the literature on the identification and role of key sectors in national and regional economies have highlighted the difficulties of consensus regarding terminology, appropriate measurement as well as economic interpretation. In this paper, some new perspectives are advanced which provide a more comprehensive view of an economy and offer the potential for uncovering alternative perspectives about the role of linkages and multipliers in input-output and expanded social accounting systems. The analysis draws on some pioneering work by Miyazawa in the identification of internal and external multiplier effects. The theoretical techniques are illustrated by reference to a set of input-output tables for the Brazilian economy. The paper thus provides a more comprehensive view than the ones proposed by Baer et al. (1987), Hewings et al. (1989) and the recent contributions of Clements and Rossi (1991, 1992) that draw on some earlier work of Cella (1984).
[Printed in The Developing Economies, 33:233-270 (1995)]

The Asian Economy: Trade Structure Interpreted by Feedback Loop Analysis
Michael Sonis, Joaquim J.M. Guilhoto, Geoffrey J.D. Hewings (October, 1994)

Abstract: The recent discussions that focused on the problems of the Uruguay Round of the General Agreement on Tariffs and Trade [GATT] together with the emergence of strengthened and expanded free trade areas [such as NAFTA, European Union and MERCOSUL/MERCOSUR] have created the need for careful analysis of the nature of internal and external dependence among nations and, within any nation, among the constituent regions. The picture that is obtained from inspection of import and export flows is only one (and often the smaller) part of the nature of dependence; there is a need to consider the indirect effects and, in addition, the possible feedbacks that may accrue from expansion of links between any two countries rippling through a broader set of economies and returning to expand activity in the originating economy. However, until recently, a dearth of data precluded the type of analysis conducted here; the development of consistent intercountry input-output tables for Europe enabled the first attempt at an understanding of intercountry dependencies (see Sonis, Oosterhaven and Hewings, 1993). This paper will explore similar perspectives with a set of Asian intercountry input-output tables for 1985.
In this paper, some new perspectives are advanced that provide a more comprehensive view of the interactions between the economies of Asia. The analysis focuses on the potential for uncovering alternative perspectives about the role of linkages and multipliers in input-output systems. The analysis draws on some pioneering work by Miyazawa in the identification of internal and external multiplier effects. Paths of direct and indirect dependency are revealed as well as the nature and strength of feedback loops. In addition, some potential exists for contributions to the debate raised by Krugman (1991, 1993) on the role of regionalism versus multilateralism.
Using these methods, it is possible to provide insights into the way in which these economies are integrated, the strength of the integration and the potential consequences of action in one economy on the rest of the system. The analysis parallels some earlier work on the European economies and will provide the basis for future comparative analysis as updated tables are produced.
[Printed in Journal of Applied Input-Output Analysis 2:24-40 (1995)]

Comparative analysis of China's Metropolitan Economies: An Input-Output Perspective
Michael Sonis, Jie Min Guo, Geoffrey J.D. Hewings (October, 1994)

Abstract: This paper explores some new approaches to the analysis of regional economic structure using a small sample of regional input-output tables for China as the basis. In this approach, structure is viewed as an additive decomposition of three initial components and thereafter these components are further divided into change initiated within the sector and outside the sector. The analysis is then linked with the notion of a field of influence of change to provide a more complete view of the way in which these economic structures interact with the rest of the economic system.

Three-Dimensional Analysis of Economic Performance
Graham R. Schindler, Philip R. Israilevich, Geoffrey J.D. Hewings (October, 1994)

Abstract: Forecasting the future of a regional economy is a complex task that can now be undertaken with a variety of analytical tools. Assessing the feasibility of these forecasted outcomes (for example, employment growth in specific sectors) given potential constraints placed on expansion in other parts of the economy create difficulties for evaluation of appropriate public policy responses. In particular, when attention is focused on optimal investment strategy by public policy-makers, the issues become more complicated. In this paper, we attempt to provide some insights into the way in which scenario development can be linked with a forecasting system to provide some guide to the creation of a more rational pattern of public sector investment. The analysis is illustrated with reference to an econometric-input-output forecasting model for the Chicago Metropolitan Region.
[Printed in Regional Studies, 31: 131-138 (1997)]

Macro-to-Micro Modeling: The Fabricated Metals Sector in Chicago
Karin Carter, Geoffrey J.D. Hewings, Philip R. Israilevich (December, 1994)

Abstract: This paper provides an examination of the fabricated metals sector in the Chicago region, viewed from two perspectives. The first is a macro perspective, generated through the analysis that stems from a large-scale model of the Chicago regional economy. In this view, the sector is compared and evaluated with general trends and tendencies in the region's economy. Complementing this approach is a micro perspective in which insights have been drawn from the a survey instrument administered to a sample of the fabricated metals' establishments in the region. The choice of many of the questions in the survey instrument was conditioned very strongly by some of the findings generated by the macro model. After presenting both perspectives, an attempt is made to provide an integrated analysis of the sector in the economy. Special attention is paid to the role of labor and the issue of skill requirements in the sector over the next decade. The experiment revealed the attraction of having both perspectives and suggests a useful method for future analysis of specific sectors.

The Economic Impact of the 1993 Mississippi River Flood
Geoffrey J.D. Hewings, Ramamohan Mahidhara (December, 1994)

Abstract: The Iowa Regional Econometric Input-output Model is used to assess the economic impacts of the 1993 flood on the Iowa economy. Particular attention is paid to both the negative impacts of the flood and the positive economic stimulus provided by the reconstruction and repair activities.
[Printed in S. Changnon (ed.) The Great Flood of 1993, (Westview Press, 1996)]


The Development and Use of Interregional Input-Output Models for Indonesia under Conditions of Limited Information
Edison Hulu and Geoffrey J. D. Hewings (January 1993)

Abstract: Spatial development planning in developing economies has created the need for analytical frameworks that are capable of providing assessment of alternative strategies. This paper reports on the methods used to construct a set of interregional input-output tables for a five-region division of Indonesia under conditions of limited information for 1980 and 1985. The tables were constructed as a prelude to the development of a comparable set of interregional social accounts and the eventual construction of an interregional computable general equilibrium model. The structure of the Indonesian economy is explored and described; the fine structure is revealed through an examination of the fields of influence of some of the analytically important coefficients. Finally, a brief examination of the use of the model in an export promotion strategy is reported. The dominant positions of Sumatera and Jawa are revealed as is the concomitant difficulties attendant upon development strategies that attempt to encourage growth in other regions.
[Printed in Review of Urban and Regional Development Studies 5:135-153 (1993)]

Identifying the Spatial Impacts of Regional Development Programs in Bangladesh using an Interregional Social Accounting Model
Sarwar Jahan and Geoffrey J. D. Hewings (February 1993)

Abstract: The identification and interpretation of the transmission of change within economic systems has created a need for techniques of analysis that link together the major components of these systems; for the past several decades, the social accounting matrix formulation has served this purpose very well. However, as these matrices become larger and more complex, the need to interpret and reveal the structure and paths of impact has become more pressing. In this paper, a 56x56 four-region, interregional social accounting model for Bangladesh is used as a basis for describing and interpreting the structure of the economy. This structure is revealed with the help of several alternative decomposition algorithms. The central conclusion of the analysis suggests that the alternative decompositions represent different hierarchical levels of social accounting systems. At the micro-level, the transmission of economic influence is presented; at the meso-level, the distribution of the influence of changes is revealed while at the macro-level, spatial-economic substructures are revealed. The analysis also suggests important procedures for future model development and updating.

Interpreting Spatial Economic Structure: Feedback Loops in the Indonesian Interregional Economy, 1980, 1985.
Michael Sonis Geoffrey J.D. Hewings Jiemin Guo Edison Hulu (July, 1993)

Abstract: In this paper, an alternative methodology is proposed to try to uncover the nature of the interregional economic structure that has tended to reinforce the hegemonic role that Java and Sumatera plat in the Indonesian economy. The interpretation is made through the application of feedback loop analysis to a set of interregional input-output tables for 1980 and 1985. feedback loop analysis offers an alternative perspective that is situated between the often too aggregated linkages view derived from usual applications of input-output analysis and the very disaggregated approach of structural path analysis in which the myriad paths of interaction present a daunting problem of classification and interpretation. The Indonesian economy is divided into five regions (Sumatera, Java, Kalimantan, Sulawesi and the Eastern Islands) and three sectors (primary activities, manufacturing and services). Even over a period of five years, important changes in the circulation of flows were observed; in particular, intra-regional flows grew more rapidly that inter-regional flows especially in Java and Sumatera, while there were some changes in the circulation patterns of the interregional flows.
[Printed in: Regional Science and Urban Economics, 27: 325-342 (1997)]

Trade, Sensitivity and Feedbacks: Interregional Impacts of the US-Canada Free Trade Agreement
Ricardo Gazel, Geoffrey J.D. Hewings Michael Sonis (July, 1993)

Abstract: Most analyses of the impacts of existing and proposed free trade agreements have focused on the impacts measured at the national level. Given the significant differences in the composition of industry across states within nations, concern has been raised about the possibility of there being differences in impacts of free trade at the sub-national level. However, the states' economies of the United States do not function in isolation; there is substantial inter-state trading in goods and services and a complex pattern of flows of funds of various kinds (investments, taxes, transfers, pensions, dividends and so forth). As a result, international trading relationships between one state and a foreign country will have the capacity to create a complex set of ripple or multiplier effects on the rest of the United States. The basic nature of the interregional relationships are presented graphically for a four-region version of the interregional computable general equilibrium model in attempt to reveal the subtle nature of the linkages and feedback effects.
Initial attention has been focused on the potential impacts of the Free Trade Agreement between Canada and the United States. National-level assessments suggested that the impacts for the United States would be very small (about 0.1% of GNP); this result would appear to be surprising in view of the fact the US-Canada trade is by far the largest bi-lateral volume in the world. However, over 70% of items traded between the two countries are currently free of duty, thus the muted impact of additional reduction in tariffs. At the sub-national level, attention was focused on a four-region division of the US, with Canada as a fifth North American "region."
Analysis reported in this paper focused on the degree to which the interregional model is sensitive to parameter estimates. A limited number of experiments were performed, with attention to the elasticity estimates and the interregional flows. The variations produced, in comparison to the base case, reflect considerable uncertainty about the reliability of some of the derived elasticities and interregional trade flows. The sensitivity analysis is complemented with an evaluation of some of the more important feedback loops in the trading relationships among the regions.
[Printed in J.C.J.M. van den Bergh, P. Nijkamp and P. Rietveld (eds) Recent Advances in Spatial Equilibrium Modeling (Springer-Verlag, 1996)]

An Examination of Multi-Regional Structure: Hierarchy, Feedbacks and Spatial Linkages.
Michael Sonis, Geoffrey J.D. Hewings Ricardo Gazel (August, 1993)

Abstract: The identification and interpretation of regional economic structure is addressed by reference to a four region, three sector interregional input-output table for the US for 1982. Using the transactions matrix, a succession of self-influence feedback loops are identified, first at the macro-regional level (where all transactions are aggregated into one sector) and, subsequently, with more sectoral detail. The feedback loops are extracted hierarchically using the Matrioshka Hierarchical Feedback Loop Principle.
The empirical results reveal the domination of domestic (intra-regional flows) and the dominant role that region 4 (Rest of the US) plays in the bi-lateral trading patterns. However, when sectoral flows are introduced to the intra- and inter-regional flows, the pattern of feedback loops becomes more complex, although the overall pattern matches the structure of the aggregate transactions flows.
The analysis provides insights into structure and spatial linkages that cannot be revealed from the more usual data sources (such as the distribution of employment by sector). With tables available for more than one time period, it would be possible to examine structural changes in a more complete fashion.
[Printed in Annals of Regional Science 29:409-430 (1995)]