A synthesis of the production function and the shift-share model : A new regional modelling approach

The purpose of this paper is to suggest a new approach to regional modelling and show the way by which regional expansion paths of output and employment can be developed. Basically, the theoretical model is a synthesis of the production function for the industry (or region), the shift-share model, and a set of hypotheses and a number of identifies concerning the growth components of employment. The growth components of employment specified by the shift-share model and explained by the hypotheses enter and modify the production function in the sense that the shift-share model is linked directly to the production function in which the labor factor appears disaggregated into three distinct components (regional-share, industrial-mix, and national growth component). The theoretical model was tested for the manufacturing industry of the Greek economy. The policy implications of this model center around the fact that policy-makers can affect regional economic variables towards the desired level and direction.