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State growth empirics: the long-run determinants of state income growth

Author

Listed:
  • Paul W. Bauer
  • Mark E. Schweitzer
  • Scott Shane

Abstract

Real average U.S. per capita personal income growth over the last 65 years exceeded a remarkable 400 percent. Also notable over this period is that the stark income differences across states have narrowed considerably: In 1939 the highest income state’s per capita personal income was 4.5 times the lowest, but by 1976 this ratio had fallen to less than 2 times. Since 1976, the standard deviation of per capita incomes at the state level has actually risen, as some higher-income states have seen their income levels rise relative to the median of the states. A better understanding of the sources of these relative growth performances should help to characterize more effective economic development strategies, if income growth differences are predictable. In this paper, we look for statistically and economically significant growth factors by estimating an augmented growth model using a panel of the 48 contiguous states from 1939 to 2004. Specifically, we control for factors that previous researchers have argued were important: tax burdens, public infrastructure, size of private financial markets, rates of business failure, industry structure, climate, and knowledge stocks. Our results, which are robust to a wide variety of perturbations to the model, are easily summarized: A state’s knowledge stocks (as measured by its stock of patents and its high school and college attainment rates) are the main factors explaining a state’s relative per capita personal income.

Suggested Citation

  • Paul W. Bauer & Mark E. Schweitzer & Scott Shane, 2006. "State growth empirics: the long-run determinants of state income growth," Working Paper 0606, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:0606
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    References listed on IDEAS

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    Cited by:

    1. Laura Crispin & Subhra B. Saha & Bruce A. Weinberg, 2010. "Innovation spillovers in industrial cities," Working Paper 1025, Federal Reserve Bank of Cleveland.
    2. Nivedita Mukherji & Jonathan Silberman, 2011. "Idea generation: the performance of U.S. States 1997–2007," The Journal of Technology Transfer, Springer, vol. 36(4), pages 417-447, August.
    3. Adelaja, Adesoji O. & Hailu, Yohannes G. & Abdulla, Majd, 2009. "New Economy Growth Decomposition in the U.S," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49579, Agricultural and Applied Economics Association.

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    Keywords

    Economic development ; Income ; Education - Economic aspects;

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