Productivity Growth of US States

• Main Author: Panda, Bibhudutta
• Other Authors: Unel, Bulent
• Format: Others
• Language: en
• Published: LSU 2010
• Subjects: Economics
• Online Access: http://etd.lsu.edu/docs/available/etd-11112010-204900/

This dissertation makes a contribution to regional studies by constructing Multi-Factor Productivity (MFP) growth measures at the state level for the US. The first essay of the dissertation exploits a dual growth accounting technique to calculate sector-specific MFP growth for all US states from 1980 onwards. In the process, the essay contributes by constructing a data set on the state level real user cost of capital paying particular attention to inter-state variations in the composition of output, relative prices of investment goods, effective corporate taxes, and inflation rates for the manufacturing and service sectors. Some of the key implications of our analysis are: a) The contribution of MFP growth in driving labor productivity is higher in the manufacturing sector compared to the service sector; b) The source of divergence between the primal and dual measures of MFP growth originates from inconsistencies between the constructed real user cost and the implied real user cost of Bureau of Economic Analysis; c) The real user cost for the service sector demonstrates negative growth rate resulting from a rapid decline in the relative price ratio of investment goods providing support for "Investment Specific Technological Change" and also implying high rates of capital accumulation; d) The average growth in the real user cost of capital is non-zero and shows wide variability across states for both the sectors. The primary focus of the second essay is to capture the positive impacts of schooling and Research and Development (R&D) expenditure on MFP growth for US states. While the evidence for positive externalities from schooling has been disappointing in the regional literature, the evidence of externalities from R&D is seldom found at the state level in US. The essay argues that a state with higher level of education not only creates better ideas, but also is more favorable to adopt, implement and execute the newly available ideas and hence, to absorb the knowledge spillovers. Further, it is argued that the states with favorable R&D policies attract more efficient firms and hence, experience higher MFP growth. To achieve this, the essay extends the dual accounting exercise to construct MFP growth measures for the non-farm, non-mining, private sector for all US states and successfully establishes the superiority of the dual measures. The empirical exercise documents significant positive externalities from schooling and R&D only after controlling the "catch-up" effect where poor states converge towards the rich states and attributes an important role to schooling and R&D in speeding up this process.