Determinants of Regional Variations in the Rate of Profit: An Empirical Analysis for Austrian Manufacturing

The profit rate represents a central concept in economics and is commonly seen as one of the most accurate indicators of economic vitality of firms, industries, and regions. The profit rate is expected to influence a number of economic processes, such as capital flows, technological change, and long-term shifts in economic activities. In regional economics, spatial variations in profitability are supposed to guide investment over space which affects the speed of regional accumulation and regional economic structures. Thus, differences in regional profit rates may be a major source for differences in regional economic development. An analysis of factors determining the regional level of profitability might deepen the understanding of regional development processes. Despite the theoretical attention which is paid to the rate of profit in regional economics there is a significant lack in empirical studies. A major reason might be the poor quality or even absence of adequate data. In this paper, an attempt is made to measure profit rates for Austrian regions on a highly disaggregated regional level (97 districts) and a 21-year period (1972-1992). An explanatory conceptual model is employed in order to identify variables which affect regional profit rate variations. Three groups of determinants are distinguished: structural characteristics of a regional economy (production technology, market structures, capital-labour-relations), spatial characteristics of a regional economy (i.e. transactions costs and spatial externalities) and firm- and location-specific efficiencies (in terms of production process