FORECASTING METROPOLITAN EMPLOYMENT USING AN EXPORT-BASE ERROR-CORRECTION MODEL

This paper shows that a time‐series version of export‐based location quotients, which decompose area employment into export and local components are co‐integrated. Given the statistically established co‐integrating relation between the time series for export and local employment, the Granger Representation Theorem tells us that an error‐correction mechanism model is the appropriate time‐series model specification. A set of forecasting experiments is carried out, in order to test whether the error‐correction model produces better long‐run forecasts that hold together in economically meaningful ways. Given the computer hardware and software that currently exist, the model developed here represents a simple, low‐cost method for accurately forecasting local‐area employment in the tradition of past work on export‐base models. Copyright © 1990, Wiley Blackwell. All rights reserved