Structural change in regional economies: A varying coefficients econometric modeling approach

Traditional tools of econometric analysis building rest in almost all cases on the precept that the structure of economy is stable. This asumption is very restrictive in the case of modeling regional economies, where it is very difficult assume that the future will be similar to the past. The objective of this paper is to investigate the effects of structural change on the process of building regional econometric models, and to explore how this process should depart from standard practise when structural change is present. We will ilustrate this methodology by estimating a econometric model for Extremadura, a region of Spain where had been in the last decade deep economic changes which could be originated a fundamental structural change.