Non-Cointegration and Econometric Evaluation of Models of Regional Shift and Share
Scott J. Brown
N. Edward Coulson
Robert F. Engle
This paper tests for cointegration between regional output of an industry
and national output of the same industry. An equilibrium economic theory is
presented to argue for the plausibility of cointegration, however, regional
economic forecasting using the shift and share framework often acts as if
cointegration does not exist. Data analysis on broad industrial sectors for 20
states finds very little evidence for cointegration. Forecasting models with
and without imposing cointegration are than constructed and used to forecast
out of sample. The simplest, non-cointegrating models are the best.
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