Regional Dependencies and Local Spillovers: Insights From Commuter Flows

Abstract

A region's growth trajectory is influenced by the economic circumstances of other regions in its proximity. While proximity is often understood in a geographic sense, economic connectivity can take many different forms. In particular, shock transmission processes between regions are inherently asymmetric and heterogeneous, which is not captured by geographic proximity measures. As a potential channel for economic dependencies, we consider cross-regional commuter flows. Commuters, who spend a substantial portion of their income in a different place from where they earn it, connect peripheral regions to economic centers. In an econometric framework, we estimate time-space dynamic panel models with German county-level data. Given those estimates, we demonstrate a considerable variation in the spatial distribution of shock responses from using alternative proxies for spatial dependency, which is hidden by the traditional focus on average marginal effects. Local spatial multipliers differ depending on the nature and origin of the shock and the assumed network structure.