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State and local policy, factor markets and regional growth

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  • Stephen P. A. Brown
  • Kathy J. Hayes
  • Lori L. Taylor

Abstract

A large and growing literature to explain how state and local policies affect factor markets, firm location and economic growth has developed in three distinct threads. These threads have variously emphasized how policy and natural amenities affect regional economic growth or firm location; how variations in policy and natural amenities can lead to persistent wage differentials across regions; and how regional variation in factor inputs, including public capital, affects output. In this article, we expand the modeling framework of Roback and Gyourko and Tracy to integrate these threads into a single inquiry about how state and local policies—including the provision public capital—affects factor markets and economic growth. Using the model as the basis for estimation, we find that state and local policies have a more profound influence on the private capital-to-labor ratio in a region than on private output. Furthermore, the evidence suggests that the growth of government—either in the form of services or public capital—discourages private sector growth.

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File URL: http://www.dallasfed.org/assets/documents/research/papers/2002/wp0202.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 0202.

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Date of creation: 2002
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Handle: RePEc:fip:feddwp:0202

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Keywords: Regional economics;

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  1. Joseph Gyourko & Joseph S. Tracy, 1986. "The Importance of Local Fiscal Conditions in Analyzing Local Labor Markets," NBER Working Papers 2040, National Bureau of Economic Research, Inc.
  2. John G. Fernald, 1999. "Roads to Prosperity? Assessing the Link between Public Capital and Productivity," American Economic Review, American Economic Association, vol. 89(3), pages 619-638, June.
  3. Hanushek, E-A & Rivkin, S-G & Taylor, L-L, 1995. "Aggregation and the Estimated Effects of School Resources," RCER Working Papers 397, University of Rochester - Center for Economic Research (RCER).
  4. Riddel, Mary & Schwer, R. Keith, 2003. "Regional Innovative Capacity with Endogenous Employment: Empirical Evidence from the U.S," The Review of Regional Studies, Southern Regional Science Association, vol. 33(1), pages 73-84.
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  8. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  9. Neumann, George R & Topel, Robert H, 1991. "Employment Risk, Diversification, and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1341-65, November.
  10. Wayne B. Gray, 1997. "Manufacturing Plant Location: Does State Pollution Regulation Matter?," NBER Working Papers 5880, National Bureau of Economic Research, Inc.
  11. Bartik, Timothy J, 1985. "Business Location Decisions in the United States: Estimates of the Effects of Unionization, Taxes, and Other Characteristics of States," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(1), pages 14-22, January.
  12. Carlton, Dennis W, 1983. "The Location and Employment Choices of New Firms: An Econometric Model with Discrete and Continuous Endogenous Variables," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 440-49, August.
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  14. Grosskopf, Shawna & Hayes, Kathy J. & Taylor, Lori L. & Weber, William L., 2001. "On the Determinants of School District Efficiency: Competition and Monitoring," Journal of Urban Economics, Elsevier, vol. 49(3), pages 453-478, May.
  15. Timothy J. Bartik, 2002. "The Effects of Environmental Regulation on Business Location in the United States," Book chapters authored by Upjohn Institute researchers, in: Wayne B. Gray (ed.), Economic Costs and Consequences of Environmental Regulation, pages 129-151 W.E. Upjohn Institute for Employment Research.
  16. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-78, December.
  17. Catherine J. Morrison & Amy Ellen Schwartz, 1992. "State Infrastructure and Productive Performance," NBER Working Papers 3981, National Bureau of Economic Research, Inc.
  18. Haughwout, Andrew F., 1998. "Aggregate Production Functions, Interregional Equilibrium, and the Measurement of Infrastructure Productivity," Journal of Urban Economics, Elsevier, vol. 44(2), pages 216-227, September.
  19. Jaume Puig-Junoy, 2001. "Technical Inefficiency and Public Capital in U.S. States: A Stochastic Frontier Approach," Journal of Regional Science, Wiley Blackwell, vol. 41(1), pages 75-96.
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Citations

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Cited by:
  1. McPhail, Joseph E. & Orazem, Peter & Singh, Rajesh, 2010. "The Poverty of States: Do State Tax Policies Affect State Labor Productivity?," Staff General Research Papers 31552, Iowa State University, Department of Economics.
  2. Partridge, Mark D. & Rickman, Dan S., 2012. "Integrating regional economic development analysis and land use economics," MPRA Paper 38291, University Library of Munich, Germany.
  3. McDonald, Bruce D. & Miller, D. Ryan, 2010. "Welfare programs and the state economy," Journal of Policy Modeling, Elsevier, vol. 32(6), pages 719-732, November.
  4. Thompson, Eric C., 2007. "Measuring the Impact of Tourism on Rural Development: An Econometric Approach," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 37(2).
  5. Decker, Christopher S. & Thompson, Eric C. & Wohar, Mark E., 2009. "Determinants of State Labor Productivity: The Changing Role of Density," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 39(1).
  6. Eric Thompson & George Hammond & Stephan Weiler, 2006. "Amenities, local conditions and fiscal determinants of factor growth in rural America," Research Working Paper RWP 06-08, Federal Reserve Bank of Kansas City.

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