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The 1980s divergence in state per capital incomes: what does it tell us?

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  • Carolyn Sherwood-Call
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    Abstract

    During most of this century, state per capita incomes have converged. Researchers generally agree that incomes diverged between 1979 and 1988, but there is no consensus about what caused the divergence. This paper makes two significant contributions to the literature on the 1980s divergence and on the longer-term converging trend within the United States. First, it shows that the 1980s divergence was not primarily due to plunging oil prices, as is commonly argued. Instead, the most important reason for the divergence was a positive shock to some Northeast states, which had an unusually large effect on income. Second, this paper addresses the question of whether the 1980s divergence reflects a fundamental change in the long-term downward trend in income dispersion. The analysis suggests that state per capita incomes may be so close to their steady-state levels that they have stopped converging.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

    Volume (Year): (1996)
    Issue (Month): ()
    Pages: 14-25

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    Handle: RePEc:fip:fedfer:y:1996:p:14-25:n:1

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    Keywords: Income;

    References

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    1. Quah, Danny, 1993. " Galton's Fallacy and Tests of the Convergence Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 427-43, December.
    2. Bernard, A.B. & Durlauf, S.N., 1994. "Interpreting Tests of the Convergence Hypothesis," Working papers 9401r, Wisconsin Madison - Social Systems.
    3. Randall W. Eberts & Mark E. Schweitzer, . "Regional Wage Convergence and Divergence: Adjusting Wages for Cost-of-Living Differences," Upjohn Working Papers and Journal Articles rwe1994er2, W.E. Upjohn Institute for Employment Research.
    4. Friedman, Milton, 1992. "Do Old Fallacies Ever Die?," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 2129-32, December.
    5. Ram, Rati, 1992. "Interstate Income Inequality in the United States: Measurement, Modelling and Some Characteristics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 38(1), pages 39-48, March.
    6. David Brauer & Mark Flaherty, 1992. "The New York City recession," Quarterly Review, Federal Reserve Bank of New York, issue Spr, pages 66-71.
    7. Gerald A. Carlino, 1992. "Are regional per capita earnings diverging?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 3-12.
    8. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
    9. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
    10. Lynn E. Browne, 1991. "The role of services in New England's rise and fall: engine of growth or along for the ride?," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 27-44.
    11. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
    12. Rae D. Rosen, 1993. "Recent developments in New York City's economy," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 15-26.
    13. Cletus C. Coughlin & Thomas B. Mandelbaum, 1988. "Why have state per capita incomes diverged recently?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 24-36.
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