An Alternative Approach to the Analysis of the U.S. Per Capita Income Convergence

Abstract

This paper examines U.S. per capita income convergence in 1929-2002 using a panel approach based on the assumptions of multiple aggregate structural breaks and growth clubs. One novelty is that our specification explicitly allows for regional conditional convergence to the nation, while at the same time allowing for regional-growth clubs in which states conditionally converge to their regional average. In general, the results support those who argue the entire cross-section of growth dynamics should be examined. In particular, the estimates of convergence speed from previous studies are strongly affected by a post-1982 divergence and a club-growth pattern, which are ignored under simpler econometric specifications.

Keywords: Convergence, growth clubs, panel time series models, structural changes

JEL Classification: O47, O18, R11, R12