A shift-share analysis, used in regional science, political economy, and urban studies, determines what portions of regional economic growth or decline can be attributed to national, economic industry, and regional factors. The analysis helps identify industries where a regional economy has competitive advantages over the larger economy. A shift-share analysis takes the change over time of an economic variable, such as employment, within industries of a regional economy, and divides that change into various components. A traditional shift-share analysis splits regional changes into just three components, but other models have evolved that expand the decomposition into additional components.
Overview
A shift-share analysis attempts to identify the sources of regional economic changes. The region can be a town, city, country, statistical area, state, or any other region of the country. The analysis examines changes in an economic variable, such as migration, a demographic statistic, firm growth, or firm formations, although employment is most commonly used. The shift-share analysis is performed on a set of economic industries, like those defined by the North American Industry Classification System (NAICS). The analysis separates the regional economic changes within each industry into different categories. Although there are different versions of a shift-share analysis, they all identify national, industry, and regional factors that influence the variable changes.
Traditional model
The traditional form of the shift-share analysis was developed by Daniel Creamer in the early 1940s, and was later formalized by Edgar S. Dunn in 1960.
- National growth effect is the portion of the change attributed to the total growth of the national economy. It equals the theoretical change in the regional variable had it increased by the same percentage as the national economy.
- Industry mix effect is the portion of the change attributed to the performance of the specific economic industry. It equals the theoretical change in the regional variable had it increased by the same percentage as the industry nationwide, minus the national growth effect.
- Local share effect is the portion of the change attributed to regional influences, and is the component of primary concern to regional analysts.
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e_i^{t+n} - e_i^t = NS_i + IM_i + RS_i
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The beginning and ending values of the economic variable within a particular industry are and , respectively. Each of the three effects is defined as a percentage of the beginning value of the economic variable. Industry mix effect may be referred to as proportional shift.
In most shift-share analyses, the regional economy is compared to the national economy. However, the techniques may be used to compare any two regions (e.g., comparing a county to its state).
Dynamic model
In 1988, Richard Barff and Prentice Knight, III, published the dynamic model shift-share analysis. In contrast to the comparative static model, which only considers two years in its analysis (the beginning and ending years), the dynamic model utilizes every year in the study period. Although it requires much more data to perform the calculations, the dynamic model takes into account continuous changes in the three shift-share effects, so the results are less affected by the choice of starting and ending years. In the Esteban-Marquillas model, the regional share effect itself is decomposed into two components, isolating a regional shift component that is not correlated to the industrial mix. He used this method to decompose the national share and industrial mix effects into expected and differential components. The expected component is based on the homothetic level of the variable, and is the effect not attributed to the regional specializations. The differential component is the remaining effect, which is attributable to the regional industrial mix.