Three Essays on the Impact of Automobile Production on Alabama’s Economy

Abstract

The Alabama state government has expanded economic incentives to attract auto industry in order to create additional employment and generate personal income for its citizens. As a result, large automobile firms and its input suppliers have located in several Alabama counties. This paper studies the effect of automobile production on per capita income, employment, population, nonfarm proprietor density and poverty in Alabama’s counties, especially in the distressed black belt counties and also examines whether “people follow jobs” or “jobs follow people”. In Chapter one, regional growth models were developed as a spatial panel simultaneous equations model of population, per capita income and employment using county data for the period 1970-2007 and for 1997-2005 to determine the impact of auto production on income, population, and employment growth in the state. A partial lag adjustment was introduced into this regional growth equilibrium model and a one-way error component model for the disturbances was utilized. A Generalized Spatial Three-Stage Least Squares (GS3SLS) procedure as outlined in Kelejian and Prucha (2004) was used to estimate these regional growth models. The empirical findings suggest that the population, per capita income and employment of the county where a plant locates increases with automobile production. The population of neighboring counties decline but per capita income and employment increase. The percentage increase in per capita income of distressed Black Belt Counties might be higher than the percentage increase in per capita income of other neighboring counties. The results of this analysis show that jobs follow people and also people follow jobs. Results also indicate that the effect of population growth on employment growth is at least 2 times as large as the effect of employment growth on the population growth. A conclusion is that appropriate policies to lure industrial development and improve the educational level of resident population are very important for economic development. The existence of spatial lags indicate that population, employment and per capita income growth are not only dependent on the characteristics of that county, but also on those of its neighbors. These interdependences provide a need for economic development policy coordination among the counties. In Chapter two, regression models were estimated using county data for the period 1970-2000 to determine the impact of auto production and local government expenditure on poverty in Alabama, especially in the distressed Black Belt counties. The results show that automobile production in Alabama significantly reduces the poverty rate in all counties. The impact of automobile production on poverty reduction in distressed black belt counties is greater than in other counties. However local government expenditures are not very effective in reducing the poverty. The study suggests that industrial development may be more effective in reducing poverty than government programs. In Chapter three, a spatial panel simultaneous equations model of non-farm proprietor densities and per capita income was developed, using county data for the period 1970-2007, to determine the impact of auto production on the growth of non-farm proprietor densities in Alabama’s counties. The results show that automobile production in Alabama significantly increases the number of non-farm proprietorship in all counties. The impact of automobile production on the growth of non-farm proprietor densities in distressed black belt counties is greater than other counties. Appropriate policies to lure industrial development become very important to increase the self employment opportunity.