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The Decline in Income Growth Volatility in the United States: Evidence from Regional Data

Author

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  • Heather Anderson

    ()

  • Farshid Vahid

    ()

Abstract

We use US regional and state data to determine which regions have contributed most to the apparent decline in income growth volatility in the United States. We study changes in the variance of income growth in each region, changes in the covariance of growth between regions and changes in regional income growth shares. We establish that there has been a significant decline in the income growth volatility in thirty eight US states, and it is this, rather than changes in income shares, that is mostly responsible for the decline in the aggregate growth volatility. Further, we find that the twelve states that show no significant decline in their income growth volatility, are states with policies that make them unattractive to new businesses. We suggest that state level industrial policy may be a good, albeit partial, explanation for the decline in income growth volatility of the United States.

Suggested Citation

  • Heather Anderson & Farshid Vahid, 2003. "The Decline in Income Growth Volatility in the United States: Evidence from Regional Data," Monash Econometrics and Business Statistics Working Papers 21/03, Monash University, Department of Econometrics and Business Statistics.
  • Handle: RePEc:msh:ebswps:2003-21
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    File URL: http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2003/wp21-03.pdf
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    References listed on IDEAS

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    1. Andrews, Donald W. K., 1998. "Hypothesis testing with a restricted parameter space," Journal of Econometrics, Elsevier, vol. 84(1), pages 155-199, May.
    2. Sarabia, J. -M. & Castillo, Enrique & Slottje, Daniel J., 1999. "An ordered family of Lorenz curves," Journal of Econometrics, Elsevier, vol. 91(1), pages 43-60, July.
    3. Datt, Gaurav, 1998. "Computational tools for poverty measurement and analysis," FCND discussion papers 50, International Food Policy Research Institute (IFPRI).
    4. Basmann, R. L. & Hayes, K. J. & Slottje, D. J. & Johnson, J. D., 1990. "A general functional form for approximating the Lorenz curve," Journal of Econometrics, Elsevier, vol. 43(1-2), pages 77-90.
    5. Kakwani, Nanak C & Podder, N, 1976. "Efficient Estimation of the Lorenz Curve and Associated Inequality Measures from Grouped Observations," Econometrica, Econometric Society, vol. 44(1), pages 137-148, January.
    6. Kakwani, Nanak, 1980. "On a Class of Poverty Measures," Econometrica, Econometric Society, vol. 48(2), pages 437-446, March.
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    Citations

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    Cited by:

    1. Gerald A. Carlino & Robert Defina & Keith Sill, 2013. "The Long and Large Decline in State Employment Growth Volatility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 521-534, March.
    2. Owyang, Michael T. & Piger, Jeremy & Wall, Howard J., 2008. "A state-level analysis of the Great Moderation," Regional Science and Urban Economics, Elsevier, vol. 38(6), pages 578-589, November.

    More about this item

    Keywords

    Business location decisions; Composition effects; Diversification; Output growth volatility; Regional and state level income.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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