Multiregional VAR

What is it about?

The estimation of the impact of public investment on regional economic growth requires consideration of the spatio-temporal dynamics among the state variables of each region. According to recent data, public investment in Spain has fallen in recent years, and in some regions the reduction has been so severe that public investment has not been able to replenish depreciated capital. Recent austerity policies in Spain that feature temporary decreases in the accumulation of regional public capital should thus be evaluated in terms of their impact on the economy as a whole and on specific regions together with the spillover effects from one region to the rest of the regional system. This paper uses a multiregional integrated specification to model interdependencies across regions; our results indicate that while global decreases in public investment have a homogeneously negative effect on the output of all Spanish regions, these regions portray heterogeneous responses from localized public capital stock reductions over the simulation period considered.

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Photo by Nick Fewings on Unsplash

Photo by Nick Fewings on Unsplash