The Determinants Of U.S. State Economic Growth: A Less Extreme Bounds Analysis

This study investigates U.S. state economic growth from 1970 to 1999. I innovate on previous studies by developing a new approach for addressing “model uncertainty” issues associated with estimating growth equations. My approach borrows from the “extreme bounds analysis” approach of Leamer while also addressing concerns raised by Granger and Uhlig, Sala‐i‐Martin, and others that not all specifications are equally likely to be true. I then apply this approach to identify “robust” determinants of state economic growth. My analysis confirms the importance of productivity characteristics of the labor force and industrial composition of a state’s economy. I also find that policy variables such as (1) size and structure of government and (2) taxation are robust and economically important determinants of state economic growth. (JEL 040, 051, H10, H20, H30, H70, R11, R58, C51)