Federal Competition and Economic Growth

39 Pages Posted: 6 Oct 2009

See all articles by John William Hatfield

John William Hatfield

University of Texas at Austin

Katrina Kosec

Stanford University

Date Written: September 16, 2009

Abstract

We examine the question of how competition between governments within metropolitan areas affects economic growth outcomes. Using data on metropolitan statistical areas (MSAs) in the United States, we find that the number of county governments is significantly and positively correlated with the average annual growth rate of income per employee over 1969-2006. Exploiting exogenous variation in the natural topography of our MSAs to instrument for the number of county governments, we find evidence supporting a causal interpretation of the effect of inter-jurisdictional competition on economic growth. Furthermore, our estimates suggest that not accounting for the endogeneity of interjurisdictional competition may lead to systematic underestimation of its growth-enhancing benefits. A natural question is whether our findings merely reflect some form of reversion to the mean. Quite to the contrary, we find that higher inter-jurisdictional competition was already associated with higher income in 1969, and that the disparity only grew over the intervening 37 years.

Keywords: Economic Development, Public Policy

JEL Classification: H77, H11

Suggested Citation

Hatfield, John William and Kosec, Katrina, Federal Competition and Economic Growth (September 16, 2009). Stanford University Graduate School of Business Research Paper No. 2038, Rock Center for Corporate Governance at Stanford University Working Paper No. 63, Available at SSRN: https://ssrn.com/abstract=1483360 or http://dx.doi.org/10.2139/ssrn.1483360

John William Hatfield (Contact Author)

University of Texas at Austin ( email )

Austin, TX 78712
United States

Katrina Kosec

Stanford University ( email )

Stanford, CA 94305
United States

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