State Economic Performance Research Articles

Estimating the economic effects of US state and local fiscal policy: A synthetic control method matching‐regression approach

AbstractIn this paper, we advance the empirical literature on US state and local fiscal policymaking by using the synthetic control method (SCM) to create pairwise matches for states in subsequent regression analysis of the relationships between state and local fiscal policies and several state economic outcomes. Additional contributions include the use of principal component analysis to construct broader narratives of state economic performance and to reduce the dimensionality of the characteristics used in SCM matching, while the regressions also include variables to control for post‐matching economic shocks. Compared to conventional regression analysis, the SCM matching‐regression approach better addresses potential endogeneity, reduces interpolation bias, and creates fiscal policy measures that better reflect policy differences. The SCM‐matched regressions produce more statistically significant relationships between state and local fiscal variables and economic outcomes than do the conventional unmatched regressions, suggesting improved identification of state and local fiscal policy effects on economic outcomes. Robust relationships found include negative economic effects of the own‐source revenue burden and property taxes. Consistent with the existing literature, the estimated fiscal policy effects are quantitatively small and unlikely to drive differences in state economic performance.

Impact of Bioenergy on Economic Growth and Development: An European Perspective

The development of a country's economy depends heavily on its access to energy. It is extensively used in agriculture and related industries, including the production and delivery of fertilisers, pesticides, and farm equipment. This study investigated the impact of Bioenergy on economic growth and development in Europe with major focus on Greece. The study used a questionnaire to collect data from 400 professionals in the energy sector in Greece. The study showed that increased bioenergy production positively affects economic growth and development. It was established that there is a significant relationship between dependence on renewable and low-carbon energy systems and investing in sources of bioenergy positively affect economic growth and development. Households require bioenergy for heating, lighting, and cooking. Electricity, coal, petroleum, natural gas, uranium, and other fuels can all be used to produce energy. Bioenergy influences a state's economic performance and a good correlation with the level of innovation in the industry or with energy derived from natural gas. The article discusses the disparity in bioenergy use across nations as well as how they have changed during the investigated time. All of these factors lend credence to the advantages that bioenergy will bring about for the long-term growth of the bioeconomy. Production of bioenergy has the potential to significantly reduce climate change while long-term energy resource diversification is guaranteed.

Analysis of the Corruption Effect and Public Governance on State Economic Performance (Case Study in Asia Pasific Countries)

Corruption is a phenomenon that has received international attention. Corruption practices are very detrimental to the economic sector, accounting for 2% of world GDP or the equivalent of US$ 1.5 – 2 trillion lost every year due to corruption. The occurrence of corrupt practices is generally due to weak supervision of public officials and the complexity of the bureaucracy which opens up opportunities for corruption. Similar to corruption, the implementation of good governance in government also plays a role in the economic sector. In the global economy, the Asia Pacific region has the best economic prospects and is asked to be the engine of the global economy. But in terms of political integrity and governance, the Asia Pacific region is no better than other regions. Therefore, this study aims to examine the effect of corruption and public governance on the economic performance of Asia Pacific countries in 2004-2020. The results showed that the Corruption Perception Index, Regulatory Quality, and Political Stability had a positive effect on the economy. It is different with population growth which has a negative effect on the economy. Meanwhile, Participation and Accountability do not have a significant effect on the economy.

Does the Public Hold Governors Accountable for Policy Outcomes?

What are the origins of gubernatorial popularity? Past studies debate whether governors are substantively evaluated based on their performance in office, with some arguing that the origins of approval may be idiosyncratic to particular governors. These studies typically consider gubernatorial approval in a handful of states or patterns of approval in the aggregate. We improve on this research by drawing on a richer data source: the Cooperative Congressional Election Study. We consider both individual-level and state-level explanations of gubernatorial popularity with a sample of over 300,000 respondents across the 50 states from 2006 to 2018. We explore how party, policy outcomes, and government performance shape levels of gubernatorial approval. We show that people evaluate governors based on the ideological direction of policy outcomes in the states. When state policy outcomes align with their ideological preferences, people report higher levels of approval for the job performance of their governor. We also confirm the importance of party and state economic performance for gubernatorial approval.

An Empirical Study of the Relationship between the Ranking of America’s Top States for Business and Unemployment Rate, Growth Rate of Employment, and Growth Rate of Gross State Product

This study attempts to determine whether the ranking of America’s top states for business by CNBC is correlated with state economic performance such as the unemployment rate, the growth rate of employment, and the growth rate of gross state product. Binary variables for the South and the West are also considered. The sample consists of 50 states in 2018. The results indicate that the ranking of America’s top states for business is correlated with each of these economic indicators. Regression analysis shows that the coefficient of the ranking in each of the three regressions is significant at the 1% level. A higher ranking for a state is associated with a lower unemployment rate, a higher growth rate of employment, and a higher growth rate of gross state product.

Fiscal Decentralisation and Economic Growth in Malaysia: A Market Preserving Federalism Perspective

By using fiscal datasets from 1990 to 2010 in Malaysia, a panel Dynamic-OLS (DOLS) is employed to investigate the extent to which fiscal decentralisation can support state level economic growth as proposed in the Market preserving federalism (MPF) theory. Despite having a more centralised federalism system, the result strongly shows that a fiscal decentralisation variable, (i.e. a composite ratio of decentralisation) has significant coefficient and positive relationship with state economic growth. This implies that a certain degree of fiscal decentralisation in Malaysia is able to contribute to states’ economic performance by adopting fiscal decentralisation simultaneously on both dimensions of revenue and expenditure. This validates the view that decentralisation is a multi dimentional measure. The study shows that Malaysia also would be able to benefit from a system of federalism which empowers state governments to make policies for their jurisdictions and to compete with one another for better services and higher investment. Hence, competition is the mechanism that creates incentives that result from satisfying the MPF conditions and subsequently leading to the achievement of higher state economic performance.

Welfare, innovation capacity, and economic performance: Evidence from American federalism

Despite years of increased federal welfare spending, it is unclear how federal financial investments in welfare areas influence state economies. Based on the theory of functional federalism, this paper examines the impact of federal welfare spending on state economic performance. Employing error correction models, this research finds that state economic growth and volatility are directly observed by the long-term impact of welfare spending. The results also show that increased federal welfare spending boosts state economic performance indirectly, by motivating states to generate higher innovation capacity, especially, in knowledge-based economic development programs. This research extends our understanding of the determinants of state economic performance by addressing intergovernmental redistributive transfers, and state government’s innovation capacity.

Invisible Coattails: Presidential Approval and Gubernatorial Elections, 1994–2014

Abstract Hoping to insulate their contests from national politics, thirty-six states hold their gubernatorial elections in national midterm election years. Many scholars have assessed whether presidential evaluations nevertheless have an effect on these races, though findings have varied. We offer a new approach to examining this question, relying on underutilized state-level presidential approval data preceding 143 gubernatorial races across six national midterm election cycles. Accounting for the effects of state ideology, gubernatorial approval, campaign spending, state economic performance, and incumbency, we report that presidential approval has a positive and significant effect on the performance of the presidential party in gubernatorial races. The substantive effects are modest, though still potentially meaningful. In the primary specification, an additional six points of presidential approval is associated with about one additional point of gubernatorial vote share.

The 2017 State New Economy Index: Benchmarking Economic Transformation in the States

The purpose of the State New Economy Index is to measure states’ economic structure. Unlike other reports that assess state economic performance or state economic policies, this study focuses more narrowly on a simple question: To what degree does the structure of the 50 state economies match the ideal structure of the innovation-driven New Economy? For example, we know that a defining characteristic of the New Economy is that it is global. Therefore, the Index uses a number of variables to measure state economies’ degrees of global integration. This edition of the Index builds on seven prior editions, which were published in 1999, 2002, 2007, 2008, 2010, 2012, and 2014. It now uses 25 indicators, which are divided into five categories that best capture what is important about the New Economy: 1. Knowledge jobs: Indicators measure employment of IT professionals outside the IT industry; jobs held by managers, professionals, and technicians; the educational attainment of the entire workforce; immigration of knowledge workers; migration of domestic knowledge workers; worker productivity in the manufacturing sector; and employment in high-wage traded services. 2. Globalization: Indicators measure foreign direct investment; export orientation of manufacturing and services; and the share of each state’s output that goes to high-tech goods and services exports. 3. Economic dynamism: Indicators measure the degree of business churn (i.e., the percentage of new business start-ups and failures); the number of fast-growing firms (businesses listed in the Inc. 5000 index); the number and value of initial public stock offerings (IPOs) by companies; and the number of individual inventor patents granted. 4. The digital economy: Indicators measure Internet and computer use by farmers; the degree to which state governments use information technologies to deliver services; adoption rates and speed of broadband telecommunications; and use of information technology in the health care system. 5. Innovation capacity: Indicators measure the number of jobs in high-tech industries such as electronics manufacturing, telecommunications, and biomedical industries; the number of scientists and engineers in the workforce; the number of patents granted; industry investment in research and development; non-industry investment in research and development; movement toward a clean energy economy; and venture capital investment.

Two tales of two U.S. states: Regional fiscal austerity and economic performance

The recent fiscal austerity experiments undertaken in the states of Kansas and Wisconsin have generated considerable policy interest. Using a variety of identification approaches within a difference-in-differences framework and examining a wide range of economic indicators, this paper assesses whether the experiments have spurred growth in the states as promised by the governors and legislatures which enacted them into law. The overall conclusion from the paper is that the fiscal experiments did not spur growth, and if anything harmed state economic performance. Among the identification approaches used, the synthetic control method (Abadie and Gardeazabal, 2003; Abadie et al., 2010) is demonstrated to provide the most compelling evidence.

Enemy at the Gates

There has been much disagreement about the relationship between civil wars and state economic performance. While civil war is often associated with poor economic performance, some states have managed robust growth despite periods of domestic armed conflict. We find this disagreement results from not accounting for the spatial distribution of conflict within a country. A robust literature in economics stresses the role major cities play in economic growth. We hypothesize that the economic impact of civil conflict is contingent on the conflict’s location relative to major urban centers within a state. We use subnational data on the location of conflict relative to urban areas to test the impact of domestic conflict on annual gross domestic product growth. In doing so, we bridge the economic development literature on the importance of cities with extant literature on the effect of armed conflict to provide a novel explanation for the paradox of high macroeconomic growth in conflict-ridden countries.

Regional differences in intelligence and economic activity: A brief note

Because intelligence predicts economic success at the individual level, the present study explored at the aggregate level whether the average IQ of residents of the American states was associated with the positive economic performance of the states (the growth in the gross state product per capita) and with negative economic behavior (foreclosure rates and credit card debt). States whose residents had higher estimated intelligence, based on standardized tests given to students in the states, had better economic performance, with higher per capita income, stronger growth in gross state product per capita, lower unemployment rates, lower foreclosure rates during the recent economic crisis, and lower credit card debt. The implication of these results is that improving intellectual functioning might improve state (and national) economic performance.

Enemy at the Gates: Variation in Economic Growth from Civil Conflict

There has been much disagreement about the relationship between civil wars and state economic performance. While civil war is often associated with poor economic performance, some states have managed robust growth despite periods of domestic armed conflict. We find this disagreement results from not accounting for the spatial distribution of conflict within a country. A robust literature in economics stresses the role major cities play in economic growth. We hypothesize that the economic impact of civil conflict is contingent on the conflict's location relative to major urban centers within a state. We use subnational data on the location of conflict relative to urban areas to test the impact of domestic conflict on annual GDP growth. In doing so, we bridge the economic development literature on the importance of cities with extant literature on the effect of armed conflict to provide a novel explanation for the paradox of high macroeconomic growth in conflict ridden countries.

Economic freedom, the cost of public borrowing, and state bond ratings

PurposeThe purpose of this paper is to show that state economic policies, in addition to state economic performance, impact state bond ratings.Design/methodology/approachUsing a sample of 39 states over the period 1998‐2008, regression analysis is employed to determine whether various measures of economic freedom contribute to state bond ratings.FindingsAfter controlling for common factors such as state per‐capita income, unemployment, the ratio of tax revenue to income, state debt as a percentage of government revenue, and public corruption, results suggest that greater economic freedom is associated with higher bond ratings. For example, a one standard deviation increase in Area 2 of the Economic Freedom of North America index (Takings and Taxation) would be associated with a 0.36 increase in Moody's bond rating for that state, which translates to approximately a $247 lower cost per million dollars of debt.Originality/valueThis study contributes to the empirical state bond rating literature by highlighting that states with greater economic freedom have higher bond ratings and, therefore, pay lower borrowing costs than their counterparts with lower economic freedom index scores.

The Politics of Risk-sharing: Fiscal Federalism and the Greek Debt Crisis

Focusing on the ability of financial markets to discipline state economic performance, EU fiscal federalism specifies three conditions that need to be met for it to work effectively: clear market signals, no bailout, and corrective action driven by central rules and implemented by domestic populations. While some conditions have obviously not been met in the European response to the Greek sovereign debt crisis (2009–2012), evidence suggests the explanatory power of fiscal federalism is surprisingly robust. The study raises concerns with risk-sharing in EU economic governance and has implications for theories of EU institution-building.

Economic and programmatic indicators explain vocational rehabilitation employment rates of persons with cognitive disabilities

This national study investigated state economic health and state Vocational Rehabilitation (VR) services for persons with cognitive disabilities. Using 2004 to 2010 extant data from the Rehabilitation Services Administration(RSA) and the U.S Bureau of Labor Statistics (BLS) and the U.S. Census Bureau, this study explains variability in state VR services employment outcomes based on state economic performance and state-level VR factors. The results show state economic performance explains a significant amount of the variation in state VR employment rates for persons with cognitive disabilities. An additional significant amount of variation was explained after accounting for VR programmatic factors. These findings have broad economic and programmatic implications that should be considered to improve the employment rate of persons with cognitive disabilities.

Privileged Accumulation Spaces and Restrictions on Development of State‐Business Relations in Argentina (1966–1989)

AbstractThe aim of this work is to explain how the state‐business relation has influenced economic development in Argentina. I will make a historical and systemic analysis of the Argentinian case to illustrate how and why state‐business relations supporting privileged accumulation spaces (PAS) increased development restrictions from 1966 to 1989.During this period, successive governments shared a common view about the central role the state had to perform for industrialization, especially by supporting the growth of big domestic industrial companies. This view would only radically change in 1989, when neoliberal structural reforms were implemented.To support this hypothesis, I suggest a methodological strategy that combines several techniques and sources in order to analyze the evolution of three complex variables and their multiple relations: state economic intervention, business behavior, and performance by large corporations.

Gubernatorial Midterm Slumps

This article studies gubernatorial midterm slumps in U.S. state legislative elections. We employ a regression discontinuity design, which allows us to rule out the hypothesis that the midterm slump simply reflects a type of “reversion to the mean” generated by simple partisan swings or the withdrawal of gubernatorial coattails or “anticipatory balancing.” Our results show that the party of the governor experiences an average seat‐share loss of about 3.5 percentage points. We also find evidence suggesting that a large share of the variation in gubernatorial midterm slumps can be accounted for by (1) crude partisan balancing and (2) referendums on state economic performance, with approximately equal weight given to each.

Poverty, Innovation Capacity, and State Economic Development in the Knowledge Economy: Evidence from the U.S.

ABSTRACTWe examine poverty's effect in two ways. First, we study the relationship between poverty and capacity for innovation in the U.S. states; second, we study the combined effects of poverty and innovation capacity on U.S. state economic output and employment. Because many of the relationships among poverty, innovation capacity and economic performance are simultaneous, we employ the Arellano Bond Difference GMM estimator to estimate various models using panel data (1980–1999). The findings reveal a negative indirect effect of socio‐economic need (poverty) on human and U.S. state and local financial innovation capacity, though there is no empirical link between poverty and federal financial capacity. We find no statistically significant evidence of the contemporaneous effect of poverty on state economic performance, holding innovation capacity constant. This suggests that poverty primarily affects state economic performance indirectly through reduction of innovation capacity. Overall, our findings suggest that U.S. officials ought to be concerned about the role poverty plays in diminishing their state economies' capacity to innovate.

Sharing the Gains of Local Economic Growth: Race-to-the-Top versus Race-to-the-Bottom Economic Development

In attempting to promote economic development, states often pursue either a race-to-the-bottom approach focused on lowering business costs or a more investment-based, race-to-the-top approach that aims to increase productivity, innovation, and entrepreneurship. Whether either approach promotes growth and produces broad-based economic gains across the population is the subject of this paper. The novelty of our approach is that an extensive array of variables representing examples of the two economic development approaches are examined for their effects on various indicators of state economic performance, including income distribution, over the 2000–07 period. We find that lower taxes are statistically insignificant in explaining state economic performance, and that targeted tax incentives and financial assistance—as currently practised—are more likely to harm growth and income inequality. Some support exists for state and local governments to encourage entrepreneurship and to enhance Internet connectivity.