On Persistent Poverty in a Rich Country

Abstract

We examine differences in income within the United States, and the regions of persistent poverty that have arisen, using a newly assembled county‐level data set linking 19th century Census data with contemporary data. We identify the roles of current differences in aggregate production technologies and factor endowments, together with contributions of historical institutions, culture, geography, and human capital. We allow for possible cross‐county factor mobility via a correlated random effects GMM estimator and find evidence of significant regional differences in production technologies. Our decompositions of the poor/nonpoor income gap suggest that at least three‐fourths of the gap is explained by differences in productive factors. Persistently poor counties are different (and poorer) primarily because they have lower levels of factors of production, not because they use the factors they have less efficiently. Together, historical and contemporary human capital explain over half of the overall income gap between persistently poor and nonpoor counties.