Some limitations of regional econometric models: Fid-Bau Portal

Some limitations of regional econometric models

Richter, Charles

Conclusions Because of the many theoretical and statistical problems inherent in the construction of regional econometric models, I believe that considerable caution should be exercised by anyone who tries to use one of these models. I intentionally chose to emphasize the negative aspect of these models because I believe there is widespread misuse of econometrics and I fear that many people do not realize how tenuous the conclusions drawn from econometric models really are. This does not mean that I recommend the abandonment of econometric techniques in regional analysis. Instead, I wish to emphasize the weaknesses of regression analysis which are usually not treated by model builders. Regional models may be useful in providing short term forecasts and in assessing the immediate effects of policy decisions. The national econometric models have had limited successes in this area, and it is possible that regional econometric models will also serve in this area. However, given the structural problems of econometric models and the dubious forecasting properties of national models when compared with simple projections of time trends, I remain skeptical as to whether regional econometric models are worth building for structural analyses or as long term forecasting aides. Probably, the best reasons for employing regional econometric models in these capacities are that these models yield information which may be better than nothing at all and that there still are no better techniques available.