The return of convergence in the US states

Abstract

We analyse convergence of per capita income across the US states for the period 1929–2011. We find that absolute convergence was in evidence early, but it broke down around 1978. It appears to have returned in 1990, although more weakly than before. We use two standard metrics to evaluate convergence: (1) σ-convergence, a reduction in the SD of state per capita income and (2) β-convergence, the fact that poor states grow faster than rich states.

Keywords:

• economic growth
• convergence
• United States
• growth regressions

JEL Classification:

• 040
• 051
• R11.

Notes

¹ They report evidence of absolute convergence over the full sample period but not for the decades of the 1980s and 1990s.

² Our results are not affected if we use gross state product instead, although that data only begins in 1963.

³ This equation comes from a log-linearization of the equilibrium path near the steady state. See, for example, Hauk and Wacziarg (2009).

⁴ Evans and Karras (1996) find evidence favourable to conditional, not absolute, convergence. Johnson and Takeyama (2001) find plausible convergence clubs.

⁵ Maurseth (2001) using Eurostat data on 90 regions in 11 European countries reports the absence of convergence during the 1980–1988 period but that convergence returns in the 1989–1994 period.

⁶ According to the Bureau of Labour Statistics, net migration to the south has outpaced all other regions from 1981 to 2010.

⁷ Glaeser and Tobio (2007) discuss several factors that led to income growth in the south. One factor is an improvement in productivity. They say that productivity grew more rapidly in the south than the rest of the United States from 1950 to 1990. They conjecture that the rise in productivity could be due to an increase in the capital stock or changing political institutions. Oi (1996) offers another reason: the increased usage of air conditioning in the south helped bring about a large rise in productivity and real wages. Though he does not have statistics by firm, there was a large rise in the percentage of households using central air between 1971 and 1990, from 20.9% to 58.8%. The share of households in the south with either air conditioning units or central air rose from 58.0% to 90.7% by 1990.