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Accounting for State Economic Perfomance: A Time-Series Cross-Sectional Analysis of the Limits of State Economic Policy

IJED, Vol. 1 No. 3, (1999)

State capital, labor, and technological market conditions are important determinants of state economic performance, but these conditions should be considered exogenous variables because state government has only a marginal influence on the capital, labor, and technological resources within their political boundaries. Development and growth involve different tradeoffs, and therefore mixtures, of capital, labor, and technology across the American states. The production model specified in this paper accounts for both the direction and relative impacts of capital, labor, and technology on state economic development and state economic growth rates.
Our time series regression estimations reval that increasing capital has a greater positive short-term impact on state development levels and growth rates, than increases in labor supply. Increases in labor and technology do not produce contemporaneous increases in state economic performance because these variables involve longer-term adjustments. The findings also suggest state economies were responsive to international energy price changes and national policy reforms in the 1970's and 1980's.

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