Estimating production functions for the US states: the role of public and human capital

This paper estimates production functions for the 48 contiguous U.S. states over the 1970–2000 period employing recently developed panel estimators that tackle simultaneously parameter heterogeneity, cross-sectional dependence and non-stationarity. The findings suggest that labor, private capital and, when controlling for cross-sectional dependence, average schooling years exert a positive and significant effect on state income. In contrast, the income effect of public capital stock is negative. The state-specific coefficients indicate that this effect likely stems from the negative elasticity of income with respect to public capital in the states located primarily in the Snow Belt region.