Modeling Small Business Growth, Migration Behavior, and Household Income in Appalachia: A Spatial Simultaneous Equations Approach

In this paper, a spatial simultaneous equations model of business growth, migration behavior and median household income is empirically estimated. The empirical simultaneous model is developed from the equilibrium relationships among these variables where each variable is assumed to adjust to its equilibrium level with a substantial lag through a partial equilibrium adjustment process. We use Generalized Spatial Three-Stage Least Squares estimator to estimate the empirical model using data from 418 Appalachian counties for 1990- 2000. The results suggest the existence of very strong interdependences among business growth, migration behavior and median household income in the form of feed-back simultaneities, spatial autoregressive lag simultaneities and spatial cross-regressive lag simultaneities.