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Does California drive the West? an econometric investigation of regional spillovers

  • Economics


Federal Reserve Bank of San Francisco Economic Review 1992 Number 2 Bharat Trehan Predicting Contemporaneous Output Brian A. Cromwell Does California Drive the West? A.n Econometric Investigation of Regional Spillovers Carolyn Sherwood-Call Changing Geographical Patterns of Electronic Components Activity Does California Drive the West? An Econometric Investigation of Regional Spillovers Brian A. Cromwell Economist, Federal Reserve Bank of San Francisco. The author thanks Randall Eberts, Frederick Furlong, Michael Hutchison, Philip Israilevich, Sun Bae Kim, Dwight Jaffee, Elizabeth Laderman, Randall Pozdena, Carolyn Sherwood-Call, Ronald Schmidt, Lori Taylor, and Bharat Trehan for useful comments and suggestions. Karen Tren- holme provided excellent research assistance. This paper measures linkages between the California economy and its neighbors, and the extent to which economic shocks to California spill over to its neighbor states, through vector autoregression techniques. Leading and lagging relationships between California and other western states are identified through Granger causality tests. Then, under certain identifying assumptions, the economic importance of these relationships is measured. Finally, the sources ofthe linkages are then considered by examining the effect of California on specific sectors within a state. In general, the results suggest that the California economy does have important spillover effects on other western states-particularly those in close geo- graphic proximity to it. Federal Reserve Bank of San Francisco In terms of population, output, and diversity, California dwarfs its neighbors in the Twelfth Federal Reserve District -which includes Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, and Washington. In July 1990, the 12.9 million jobs in California accounted for almost two-thirds (63 percent) of total employment in the District. For comparison, it had five times as much employ- ment as the next largest District stat

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