ABSTRACTThis paper presents a model of demand for factor inputs in regional manufacturing industry. Demands for labor and capital are distinguished from demands for factor services using a generalization of the disequilibrium adjustment framework of Nadiri and Rosen. The generalization allows for a richer variety of responses to external shocks and involves the distinction between systematic and error dynamics.The model is estimated for the period 1963:I‐1980:I using data from the Cincinnati SMSA and appropriate econometric techniques. Substantial attention is paid to the dynamic response of the estimated equation