Economic Convergence Among US States

Author:

Wahlster, Mitchell

Area of Honors:

Business Economics (Behrend)

Degree:

Bachelor of Science

Document Type:

Thesis

Thesis Supervisors:

Kenneth Louie, Thesis Supervisor
Mark F Owens, Thesis Honors Advisor

Keywords:

Economic Convergence
Solow Growth Model
Capital over Labor
Diminishing returns

Abstract:

The consensus on whether economic convergence is occurring abroad or among the U.S. states remains unclear. This paper seeks to understand whether convergence has been occurring across U.S. states, as reflected in their economic growth rates. By understanding whether convergence is occurring among states, specifically among poorer states, we can make potential inferences about current economic policy. For example, given that we can understand what role convergence plays among states, this knowledge will help policy makers make informed decisions on where to invest taxpayer money. The Solow Growth Model, which is the foundation of what has come to be known as the neoclassical growth model, is the theoretical basis of this research. To test one of the implications of the Solow Growth Model, multiple regression was used to analyze U.S. state-level economic data from various sources. Variables were included within the multiple regression model to control for differences in attributes among states. Of particular relevance in the context of the Solow Growth Model is a variable that measures differences across states in the initial-period capital-per-labor ratio. An important implication of the Solow Growth Model is that (poorer) states with lower levels of this ratio will experience higher growth rates compared to (richer) states with higher starting levels of capital per labor. This theoretical result may have potential implications across the U.S. states with respect to policies intended to stimulate economic growth. This research contributes to the growing body of literature on economic convergence inside the United States by analyzing data for a more recent time period (2002-2022) and by using a different starting-point variable (capital per worker) compared to previous studies on this topic.