Exports, employment, and production: A causal assessment of US states and regions

Rising foreign exports are generally perceived to be a driving force behind U.S. regional economic growth. Yet relatively little empirical attention h as been paid to the question of causality between foreign exports and econo mic growth at the regional level. The belief that exports are an engine of economic growth stems from traditional export base theory. This theory indi cates that multiplier effects and externalities associated with export expa nsion are key sources for regional economic growth. While the notion of an export base is often accepted tacitly by regional development researchers, economic theory actually suggests a number of different interpretations of the causal relationship between exports and growth. Heckscher-Ohlin factor endowment theory postulates, for example, that growth of exports is driven by regional labor and capital supplies. Alternatively, new international tr ade theory suggests that there is a bidirectional relationship between expo rts and regional economic growth. Exports are thought to enhance regional g rowth through promotion of economies of scale in production, but local econ omic conditions, including strong product demand and agglomeration (externa l) economies, are also thought to promote the growth of exports. In this st udy, I investigate the causal relationship between international manufactur ing exports and manufacturing employment, productivity, and output across t he states and in major multistate regions. Results offer general support fo r bidirectional causality between exports and state economic growth but als o indicate some important variations among the different regions of the cou ntry.