American Exceptionalism and the Benefits of Statehood: An Analysis of the Growth Effects of Joining the United States of America

Abstract

This paper quantifies the economic benefits of joining the United States. Adapting extant static synthetic control models into a dynamic model similar to Arellano and Bond (1991), we are able to construct the counterfactual growth paths of Texas, California, Arizona, New Mexico, Colorado, Utah, Wyoming and Nevada had they not joined the USA. We show that the real growth path outperforms the counterfactuals substantially in all cases. In the same way, we construct counterfactual growth paths of Puerto Rico, Cuba, the Philippines and Greenland in the scenario where they joined the USA at times in history where this might have been a (remote) possibility. We find counterfactual growth to be substantially higher than the actual growth. Having established the positive economic effects of US membership, we subsequently assess the sources of this added growth, distinguishing between a class of explanations related to internal market access and a class of explanations related to institutional quality. Using a large number of determinants of institutional quality, we find that the institutional quality of the USA as a whole matches the quality predicted for New England most closely. This suggests that upon accession, states imported the institutional quality of New England, which was typically superior to what they would have likely developed by themselves. We show that this institutional bonus accounts for the bulk of the growth benefits of US accession.