Non-Cointegration and Econometric Evaluation of Models of Regional Shift and Share

Scott Brown, N. Edward Coulson and Robert Engle

No 3291, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

Date: 1990-03
Note: ME
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