Long run equilibrium: convergence within an urban and rural regional economy

Abstract

PurposeTo test the economic theory that economies with greater stability and diversity are also economies that are more insulated from economic shocks.Design/methodology/approachUses persistence profiles derived from the cointegrated systems of two regional economies within the state of Oregon; the urban Portland Metropolitan Area (PMA) and the rural Southwest (SW) region.FindingsThe results of the above process illustrate that the more stable and diverse PMA responds with a smaller frequency and returns to equilibrium more quickly than the SW.Research limitations/implicationsThis paper only provides one set of observations, which is insufficient to prove the theory, but does enable a more extensive time series approach than that has been done previously. Also regional economies typically become more diversified over time, so the level of diversity can only be measured in relative terms not absolute.Practical implicationsThe paper reveals the benefits a diversified a diversified economy has in creating stable employment opportunities, as deviations in unemployment rates decline as diversification increases.Originality/valueThe paper takes a widely accepted time series econometrics technique from macroeconomic literature, cointegration, and applies it at a regional level. Cointegration combined with persistence profiles enables the integration of both the time dynamics of an economy and their inter‐industry linkages to be analyzed. This methodology dramatically increases the depth of possible analysis into the stability/diversity debate that has been waged over the last 70 years.