The Economic Performance of Cities, Essay Example

The focus of this essay is on the article written by Owyang, Michael T et al. “The economic performance of cities: A Markov switching approach.” Journal of UrbanEconomics, 64(2008): 538- 550. The article reviews the primary motivations for the increase in the employment rates in the municipalities of the United States. In order to determine the rates of employment increase, a Markov- switching paradigm is applied. The Markov – switching model which is applied divides the employment growth index of the cities into two separate stages. These stages are defined as the high stage and the low stage, in where each of the stages possesses it proprietary growth index for the cities (Owyang 538).

Hamilton- Markov Switching Paradigm

The Hamilton Markov switching paradigm can be applied instead of using the basic mean employment growth indexes as an assessment of a municipality’s production. This aspect details the economic conditions as alternate between the stages of the commercial cycle. Every commercial cycle possesses its own proprietary rate of employment increase (Owyang 539). The formal mathematical model for the rate of employment increase in a municipality for the quarter can be detailed as the following relationship.

Considering that the rate of employment increase has an average ?_ns_{n, t} and the deviancesfrom the average rate of employment increase are formed by the stochastic distortion, ?_{n, t}. In order to represent the dual commercial cycle stages, the average rate of employment increase which is shown in example [1] is allowed to alternate between and elevated and decreased value, where the alternating is administrated by a latent condition variable ,s_{n, t} = (0.1) (Owyang 539).

In the case when s_{n, t} alternates from a value of 0 to 1, the rate of increase of employment alternates from ?_{n, 0.} to a value of ?_{n, 1.} In the consideration that  ?_{n, 1} <?_{n, 0} the value of   s_{n, t}, alternates from a value of 0 to 1 during the intervals when the employment related activity alternates from elevated growth to lower growth conditions. As the case of s_{n, t}, is   not reviewed, a valuation of [1} has the requisites of placing limits on the process of probability which administrates s_{n, t}. In this circumstance, it can be presumed that s_{n, t} is an initial order dual state Markov chain (Owyang 540). This process is demonstrated by the following equation:

Pr (s_{n, t} = i ? s_{n, t- 1}= j) = p_{ij, n}.

The rate of employment growth of a municipality can be demonstrated by the subsequent growth regression equation:

?_ns_{n, t} = ?_{sn, t} +X¹_n?_{sn, t} + v_ns_{n, t}

v_ns_{n, t} ˜ N (0, ?² _v s_,n). [2]

Considering ?_{sn, t} has the characteristics of an intercept; x_n has the quality of a vector particular characteristic and v_ns_{n, t} functions as a residual. The covariates which are applied in X_n are among some of the most frequently applied in the present research (Owyang 540). The Dixit- Stiglitz rate can be determined from the quad digit employment information which is derived from the matrixes of the county’s commerce:

Diversity_n = (?¹_i=1(Emp_m/ Emp_n) ^0.5)²

Considering that i is the complete number of industrial segments in the municipality, Emp_mis theemployment in an industry i in the municipality n and Emp_n is the employment of the municipality. The first and the second equation are applied in order to construct a mathematical formula which demonstrates the proportion of posterior odds:

P_UR = Pr (M_u ?Y) * [Pr (M_R ? Y)]^-1

Considering that Y represents the complete collection of information (Owyang 540).

The basic mean rate of employment increase during a time interval is the weighted mean of the high stage and low stage employment increase rates, whereas the weighted mean is the relative frequency of the high and the low stage employment growth indexes.  There are a variety of facets which must be reviewed separately for the high stage and low stage rates of employment index increase. The increase of the employment index in the high stage has been correlated with the industrial performance combination and quality of human resources capital. The increase of the employment index during the low stages can be attributed to the industrial performance combination. This characteristic demonstrates the relative significance of the employment production of the manufacturing sector. The objective of the article is to confirm that the characteristics of the employment rate increase at municipal level are not influenced homogeneously (Owyang 547).

Works Cited

Owyang, Michael T et al. “The economic performance of cities: A Markov switching a   approach.” Journal of UrbanEconomics, 64(2008): 538- 550.