Determining Regional Structure Through Cointegration

Evaluating regional industrial structures remains an inexact process as traditional aggregation schemes often lump superficially similar but behaviorally distinct industries together. We use pairwise cointegration methods to apply econometric criteria to aggregate detailed industries into behaviorally similar sectors. Based on these aggregations, cointegration guides the proper specification of a regional system to analyze the export versus local nature of core sectors. These methodologies are applied to Denver metropolitan data to demonstrate their utility. The findings indicate previous aggregation schemes are statistically inferior to those generated by this paper’s approach.