Regional economic modelling: taxonomic application of three integration approaches to the Illawarra\u27s economy

The integration of input-output analysis and econometric models has gained popularity for its superior performance in analysing the structure of a region\u27s economy and examining the impacts of policies on a regional economy (West, 1995; Rey, 2000; Motii, 2005). There are a number of approaches through which an input-output model is integrated with an econometric model. This paper examines three approaches to regional integrated econometric input-output modelling, namely holistic embedding, coupling, and linking, from both theoretical and practical perspectives. Each approach is analysed based on their simulation and forecasting characteristics. All three approaches are applied to the Illawarra region of New South Wales in a series of ex-post forecasting experiments. The comparative forecasting performance and impact analysis accuracy of each approach is examined. Each approach is applied to a hypothetical scenario of sectoral reallocation of government expenditure, to investigate certain key sectors that provide more jobs per dollar of expenditure relative to other sectors