Exports, Employment, and Production: A Causal Assessment of U.S. States and Regions

Abstract

Rising foreign exports are generally perceived to be a driving force behind U.S. regional economic growth. Yet relatively little empirical attention has been paid to the question of causality between foreign exports and economic growth at the regional level. The belief that exports are an engine of economic growth stems from traditional export base theory. This theory indicates that multiplier effects and externalities associated with export expansion are key sources for regional economic growth. While the notion of an export base is often accepted tacitly by regional development researchers, economic theory actually suggests a number of different interpretations of the causal relationship between exports and growth. Heckscher-Ohlin factor endowment theory postulates, for example, that growth of exports is driven by regional labor and capital supplies. Alternatively, new international trade theory suggests that there is a bidirectional relationship between exports and regional economic growth. Exports are thought to enhance regional growth through promotion of economies of scale in production, but local economic conditions, including strong product demand and agglomeration (external) economies, are also thought to promote the growth of exports. In this study, I investigate the causal relationship between international manufacturing exports and manufacturing employment, productivity, and output across the states and in major multistate regions. Results offer general support for bidirectional causality between exports and state economic growth but also indicate some important variations among the different regions of the country.