Document Type

Working Paper

Publication Date


Document Number

Research Paper #2007-09


In this study, a spatial growth equilibrium model of business growth is developed and empirically estimated by Generalized Spatial Two-Stage Least Squares (GS2SLS) estimator using cross-sectional data from Appalachian States counties for 1990-2000. Beside the existence of spatial spillover effects, the results suggest that agglomerative effects that arise from both the demand and the supply sides were active in contributing to business growth in the study area during the study period. The policy implications of these findings are: (1) Regional cooperation of counties and communities is advisable and may even in fact be necessary to design appropriate policies that encourage business growth; and (2) Policy makers at the county level may need to design policies that can attract people with high endowment of human capital and higher income into their respective counties.