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A long-run interpretation of regional input-output analysis

McGregor, P.G. and Swales, J.K. and Yin, Y.P. (1996) A long-run interpretation of regional input-output analysis. Journal of Regional Science, 36 (3). pp. 479-500. ISSN 0022-4146

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Abstract

Regional input-output (I-O) analysis is traditionally motivated by a short-run, extreme Keynesian vision of markets. In this paper we argue that an appropriately formulated, investment-endogenous, I-O system replicates the long-run equilibria of a wide range of regional models, many of which do not operate as I-O systems in the short run. In particular, we use a computable general equilibrium (CGE) framework to illustrate the impact of an aggregate demand disturbance on an I-O and standard neoclassical model. When run forward over a number of periods, the results from the capacity-constrained neoclassical model asymptotically approach the I-O outcome. We use sensitivity analysis to examine the speed of adjustment of the neo-classical system and investigate barriers to the attainment of the I-O result.