An analysis of the dynamic multiplier in a two-region economy

Tsai, Ying-Yi

An analysis of the dynamic multiplier in a two-region economy

Master Thesis

1992

Publisher

University of Cape Town

Department

School of Economics

Faculty

Faculty of Commerce

Abstract

In the literature on regional economics various models have been developed to study the causes of economic growth and income fluctuations within a region. One of the best known models is that of the export base. The validity and general applicability of this model was first emphasised by North (1955), though Tiebout (1956) subsequently refuted it by claiming that factors other than exports may have a strong effect on the growth of a region. These factors included private investment, government expenditure and productivity increases amongst local industries. The North-Tiebout debate focuses essentially on the difference between the long-run and the short-run sources of regional economic growth. The North-Tiebout debate was followed by two main approaches: one based on the Keynesian income-expenditure approach and the other on input-output analysis. This essay is concerned with the application of the Keynesian approach within the context of a two-region economy. Section 2 provides a review of the literature on the export base and Keynesian approaches. This is followed, in section 3, by a discussion of Hartman and Seckler's application of dynamic analysis to the regional economy. Section 4 then shows how the Keynesian model can be adapted and applied to a two- region dynamic framework. Finally, in section 5, the stability conditions of the Keynesian model are examined, while final conclusions are drawn in section 6.

Description

Bibliography: leaves 24-26.

Keywords

Economics

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