Heterogeneity in Convergence Rates and Income Determination Across U.S. States: Evidence from County-Level Data

Bar-Ilan University and Emory University Working Paper

54 Pages Posted: 13 Feb 2004

See all articles by Andrew Young

Andrew Young

Emory University - Department of Economics

Matthew John Higgins

University of Utah - Department of Entrepreneurship & Strategy; National Bureau of Economic Research (NBER); Max Planck Institute for Innovation and Competition

Daniel Levy

Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis

Date Written: December 21, 2003

Abstract

We utilize county-level data to explore growth determination in the U.S. and possible heterogeneity in growth determination across individual states. The data includes over 3,000 cross-sectional observations and 39 demographic control variables. We use a consistent two stage least squares estimation procedure. (We report OLS estimates as well.) The estimated convergence rate across the U.S. is about 7 percent per year - higher than the 2 percent normally found with OLS in cross-country, U.S. state, and European region samples. Estimated convergence rates for 32 individual states are above 2 percent with an average of 8.1 percent. For 29 states the convergence rate is above 2 percent with 95 percent confidence. For seven states the convergence rate can be rejected as identical to at least one other state's convergence rate with 95 percent confidence. In examining the determinants of balanced growth path heights, we find that government at all levels of decentralization is negatively correlated with economic growth. Educational attainment of a population has a non-linear relationship with economic growth according to our estimates: growth is positively related to high-school degree attainment, seemingly unrelated to obtaining some college education, and then positively related to four-year degree or more attainment. Also, finance, insurance and real estate industry and entertainment industry are positively correlated with growth, while education industry is negatively correlated with growth. Heterogeneity in the effects of balanced growth path determinants across individual states is much harder to detect (or dismiss) than in convergence rates.

Keywords: Convergence, heterogeneity, neoclassical growth model, county level data, variation in convergence rates, balanced growth path, consistent estimation, government and economic growth, education and economic growth, 2SLS, consistent estimation, income determination

JEL Classification: E62, H50, I21, L60, L70, L80, O11, O18, O40

Suggested Citation

Young, Andrew T. and Higgins, Matthew John and Levy, Daniel, Heterogeneity in Convergence Rates and Income Determination Across U.S. States: Evidence from County-Level Data (December 21, 2003). Bar-Ilan University and Emory University Working Paper, Available at SSRN: https://ssrn.com/abstract=499622 or http://dx.doi.org/10.2139/ssrn.499622

Andrew T. Young (Contact Author)

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States
404-727-1022 (Phone)

Matthew John Higgins

University of Utah - Department of Entrepreneurship & Strategy ( email )

1655 East Campus Center Dr.
Salt Lake City, UT 84112
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany

Daniel Levy

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 5290002
Israel
+972 3 531-8345 (Phone)
+972 3 738-4034 (Fax)

HOME PAGE: http://econ.biu.ac.il/en/levy

Emory University - Department of Economics ( email )

1602 Fishburne Drive, Suite 306
Rich Building
Atlanta, GA 30322-0001
United States

HOME PAGE: http://economics.emory.edu/home/people/faculty/Levydaniel.html

Rimini Center for Economic Analysis ( email )

Wilfrid Laurier University
75 University Ave W.
Waterloo, Ontario N2L3C5
Canada

HOME PAGE: http://rcea.org/

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