A Regression-Based Simulation of Local Inter-Industry Structural Change Under Capacity Constraints and with Transformative Shocks

Local economic dynamics arise from different industry dynamics and relationships between industries. The paper proposes a regression-based counterfactual simulation approach with location-level industry data for the systematic empirical analysis of the resulting evolutionary regional developments. Panel regression models are used to identify different growth regimes. The approach also serves the ex-ante evaluation of possible effects of exogenous shocks on the observed development. For this purpose, simulations are carried out with the identified structure effects and positive as well as negative spillover effects between the industries. To demonstrate its advantages, we apply the approach to the analysis of path-dependent employment growth in a livestock-intensive German location facing capacity constraints. In some of the scenarios, where individual industries are affected by exogenous shocks, we observe compensatory growth in other industries. This confirms the relevance of analyses that take into account the complicated interrelationships in locally specific structural change