The neoclassical economic base multiplier

P.G. McGregor, E.P. McVittie, J.K. Swales, Y.P. Yin

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Abstract

In this paper we derive an analytical expression for the regional neoclassical economic base marginal employment multiplier. The model that we adopt is a variant of the 1-2-3 general equilibrium model used in trade analysis. Its specific neoclassical characteristics are that laborsupply is a positive function of the real consumption wage and that factor and product demands are price sensitive. We calculate the employment multipliers associated with both a demand and supply stimulus to the basic sector. We demonstrate that it is possible for the marginal economic base multiplier to take any positive or negative value. However, the value of the marginalmultiplier is likely to approximate the value of the conventional average multiplier the closer production and utility functions are to Cobb-Douglas specifications and the more elastic is the labor supply function.
Original languageEnglish
Pages (from-to)1-31
Number of pages30
JournalJournal of Regional Science
Volume40
Issue number1
DOIs
Publication statusPublished - Feb 2000

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Keywords

  • economic base multiplier
  • neoclassical
  • 1-2-3 general equilibrium model

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