Thy neighbor’s jobs: geography and labor market dynamics

This paper develops three explanations for the extent of correlation between neighboring geographic areas’ economic outcomes. Export-oriented firms in neighboring counties might independently produce similar goods, or might be linked directly through the production of intermediate inputs. In either case, counties are exposed to similar demand shocks. Finally, regions share markets for goods and services that are both produced and consumed locally. Empirical results suggest that much of the ‘risk’ associated with economic decline in neighboring regions can be attributed to industrial similarity rather than direct dependence of jobs in one area on jobs in another.