Measuring self-sustainability of economic development at the county level

Abstract

Factors that affect self-sustainability of regional economic development are defined and analyzed in this paper. Extensive empirical testing shows that at the county level, the size of the regional economy and agglomeration effects are less important than its regional multiplier and its export base. Because the classic export-base model fails specification tests when estimated at the county level, a modified export-base model accounting for spatial effects is developed and analyzed. To validate the proposed spatial export-base model, a practical procedure for estimating parameters of the model is also developed and utilized in an empirical study. The paper concludes with a brief review of the applicability of the modified export-base model to the analysis of the self-sustainability of regional economies, its limitations, and its policy implications. In particular, it is suggested that regional economic development policies should focus on promoting patterns of self-reinforcing regional growth rather than on maintaining unsustainable economic initiatives. It is also demonstrated that the size of a county's economy is not directly related to its self-sustainability and growth rates.