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Abstract

ECONOMIC CONDITIONS ARE OFTEN OBSERVED TO BE CORRELATED ACROSS SPACE AND TIME. ONE INTERPRETATION OF THIS PHENOMENON IS THAT ECONOMIC ACTIVITY IS “CONTAGIOUS.” THAT IS, GOOD OR BAD CONDITIONS IN ONE ECONOMIC AREA MAY LATER CAUSE SIMILAR CONDITIONS TO OCCUR IN NEARBY AREAS. THE PREVALENCE AND EXTENT OF THESE RELATIONSHIPS IS IMPORTANT TO UNDERSTAND FOR THOSE SEEKING TO FOSTER REGIONAL ECONOMIC DEVELOPMENT.

WE FOCUS ON CAPITAL EQUIPMENT SPENDING AT THE STATE LEVEL AT A MONTHLY FREQUENCY. THIS IS POSSIBLE GIVEN OUR ACCESS TO A UNIQUE DATA SET, THE RANDALL-REILLEY CAPITAL INVESTMENT INDEX (RRCII). THIS INDEX MEASURES CAPITAL EXPENDITURE USING UNIFORM COMMERCIAL CODE (UCC) FORMS FILED EACH MONTH WITH EACH STATE’S SECRETARY OF STATE. THE DATA IS CLASSIFIED INTO THREE INDUSTRIES: AGRICULTURE, CONSTRUCTION, AND MACHINE TOOLS, AS WELL AS A COMPOSITE MEASURE. IN THIS STUDY, WE UTILIZE THE INDEX’S STATE-LEVEL DATA FOR OHIO AND ITS NEIGHBORS: MICHIGAN, INDIANA, KENTUCKY, WEST VIRGINIA, AND PENNSYLVANIA.

OUR METHODOLOGY CONSISTS OF TYPICAL TIME SERIES TECHNIQUES: GRANGER CAUSALITY TESTS, VECTOR AUTOREGRESSIONS, AND THEIR ASSOCIATED IMPULSE RESPONSE FUNCTIONS. OUR INITIAL RESULTS SUGGEST THAT MICHIGAN IS THE ONLY STATE WITH A SIGNIFICANT RELATIONSHIP WITH OHIO AT THE COMPOSITE LEVEL, BUT THAT PENNSYLVANIA AND WEST VIRGINIA SHOW SOME RELATIONSHIP WITH OHIO IN CONSTRUCTION, AS DOES INDIANA WITH MACHINE TOOLS.

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