Regional disparities in the spatial correlation of state income growth, 1977–2002

This paper presents new evidence of spatial correlation in USA state income growth. We extend the basic spatial econometric model used in the growth literature by allowing spatial correlation in state income growth to vary across geographic regions. We find positive spatial correlation in income growth rates across neighboring states, but that the strength of this spatial correlation varies considerably by region. Spatial correlation in income growth is highest for states located in the Northeast and the South. Our findings have policy implications both at the state and national level, and also suggest that growth models may benefit from incorporating more complex forms of spatial correlation. The views expressed here are those of the authors and not those of the Federal Reserve Bank of St Louis or the Federal Reserve System