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06 06

State Growth Empirics: The Long-Run
Determinants of State Income Growth by Paul W. Bauer, Mark E. Schweitzer, and
Scott Shane

FEDERAL RESERVE BANK OF CLEVELAND

Working papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of
Cleveland publications. The views stated herein are those of the authors and are not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal
Reserve System.
Working papers are now available electronically through the Cleveland Fed’s site on the World
Wide Web: www.clevelandfed.org/research.

Working Paper 06-06

May 2006

State Growth Empirics:
The Long-Run Determinants of State Income Growth by Paul W. Bauer, Mark E. Schweitzer, and Scott Shane

Real average U.S. per capita personal income growth over the last 65 years exceeded a remarkable 400 percent. Also notable over this period is that the stark income differences across states have narrowed considerably: In 1939 the highest income state’s per capita personal income was 4.5 times the lowest, but by 1976 this ratio had fallen to less than 2 times. Since 1976, the standard deviation of per capita incomes at the state level has actually risen, as some higher-income states have seen their income levels rise relative to the median of the states. A better understanding of the sources of these relative growth performances should help to characterize more effective economic development strategies, if income growth differences are predictable. In this paper, we look for statistically and economically significant growth factors by estimating an augmented growth model using a panel of the 48 contiguous states from 1939 to 2004.
Specifically, we control for factors that previous researchers have argued were



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