Income convergence across the U.S. states: further evidence from new recent data

Abstract

Noting the analytical and empirical significance of the topic, this research revisits the theme of income convergence across the US states. The work fills several gaps in the existing literature by (a) covering the most recent period 1997–2018, (b) using the official data on real GDP per capita compiled by the US Bureau of Economic Analysis (BEA), (c) explicitly comparing the convergence scenario for 1997–2018 with that for 1977–1997, and (d) placing the observed patterns in the context of Piketty-like propositions about high returns to capital and increasing income inequality. One significant outcome of the exercise is an indication of sigma-divergence across the US states, as reflected in increased standard deviation of logs and coefficient of variation over the period, which correspond to a highly significant positive trend in both. Lack of significant beta-convergence is also of interest as is the contrast in the convergence patterns for 1977–1997 and 1997–2018. A simple explanation for income-divergence is pursued by studying the pattern of changes in K/L ratios across states from 2000 to 2015, and it is found that, contrary to the expected pattern of resource flows, K/L ratio tended to increase more in the high K/L-ratio states than in the low K/L areas. This divergence in K/L ratio underlies the sigma-divergence in income. The observed pattern may be deemed consistent with Piketty-like propositions about the high and increasing returns to capital which impeded its move to the poorer states with low K/L ratio.