Federal Spending and Economic Growth in Appalachian Counties*

Abstract

Abstract In this paper I use a model informed by key theories of regional processes, and I test three related hypotheses concerning the effects of different types of federal spending (public investment, defense, salaries/wages) on economic growth in the 399 Appalachian counties during recent business cycles. The analysis incorporates a maximum likelihood estimate spatial lag regression model and shows that federal public investment spending and defense spending exerted net positive effects on per capita income, civilian employment, and private nonfarm employment growth rates between 1983 and 1988. In addition, public investment spending had a positive relationship with percentage of earnings from mining for the 1983–1988 period. Federal spending, however, had less consistent effects during the 1989–1992 recession. Implications for theory and research on regional processes are discussed.