Tuesday, March 4, 2014

Revisiting multipliers

Paul Krugman has a blog post today relevant to a favourite rant topic, the war on multipliers. This considers to what extent the resources sector is responsible for the outperformance of the Texan economy relative to the USA: Oil, Gas, & Rick Perry
This mining expansion must also have had a multiplier effect, as mining operations and workers spent money in the local economy, raising incomes, and generating further increases in demand. The state of the art estimates of regional multipliers come from Nakamura and Steinsson (pdf), who use fluctuations in defense spending as natural experiments; they conclude that the multiplier is around 1.5. So that 2 percent of GDP Texas extractive boom should have raised the state’s GDP by 3 percent, or 2.7 percent relative to the nation as a whole.
The paper referenced is Fiscal Stimulus in a Monetary Union: Evidence from US Regions, September 2013.  Some interesting concepts and comments in there which may have to wait until the weekend for closer analysis.

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