Academic journal article Quarterly Journal of Business and Economics

Municipal Economic Growth, 1960-1990

Academic journal article Quarterly Journal of Business and Economics

Municipal Economic Growth, 1960-1990

Article excerpt

Over the last two decades, the amount of theoretical and empirical work devoted to understanding the causes of economic growth has increased rapidly. Most of the empirical analyses have focused on explaining differences in cross-national growth experiences. (1) Others have examined variations in growth across the states and regions of the United States. (2) The initial impetus for much of this work involved searching for evidence to confirm or refute the per capita income convergence predicted by the neoclassical model of economic growth. (3) The search for evidence of conditional convergence has produced one extremely important by-product: namely, an appreciation of the importance to economic growth of factors such as human capital (i.e., educational attainment); population growth; government monetary, fiscal, and trade policies; and political stability.

U.S. municipalities provide yet another rich source of data for expanding the empirical work on economic growth. In a detailed empirical analysis of the growth experiences of a cross-section of U.S. municipalities, Glaeser, Scheinkman, and Shleifer (1995) point out that national barriers to factor mobility and national policies that promote industrial diversification complicate growth studies that use cross-national data and even cross-state data. Municipalities, on the other hand, are completely open economies between which resources tend to be highly mobile; in addition, they are usually more specialized economic units than are states. Thus, Glaeser, Scheinkman, and Shleifer argue, the concerns that arise with cross-national and cross-state data can be greatly reduced by examining data on municipalities.

Glaeser, Scheinkman, and Shleifer use a sample of 203 U.S. municipalities to explore the relationship between municipal characteristics in 1960 and growth in municipal population and income over the subsequent three decades. Their sample selection is determined by their reliance on Taeuber and Taeuber (1965) for data on the racial characteristics of municipalities. Taeuber and Taeuber (1965) examine all municipalities that in 1960 had over 1,000 housing units with a nonwhite head. Their sample includes all but one of the 100 largest U.S. municipalities, but includes a disproportionate number of Southern municipalities in the next 100. Glaeser, Scheinkman, and Shleifer report that their principal conclusions also hold if they restrict themselves to only the 100 largest municipalities. In this paper, we replicate their process and examine a much broader sample of U.S. municipalities. We include municipalities from all regions of the U.S. that had at least 25,000 population in 1960. This will allow us to assess the broader applicability of their conclusions.

The Empirical Analysis of Municipal Economic Growth

Glaeser, Scheinkman, and Shleifer conduct an empirical investigation of the relationship between municipal characteristics in 1960 and municipal growth over the 1960-1990 period. They draw on the insights provided by recent theoretical and empirical analyses of economic growth to identify those factors that appear to be associated with the observed economic growth in U.S. municipalities. Their results provide the foundation for our empirical analysis of municipal economic growth.

The Basic Empirical Framework

Glaeser, Scheinkman, and Shleifer find that both municipal population growth and municipal income growth are (i) positively correlated with the initial (i.e., 1960) average level of educational attainment in the municipality; (ii) negatively correlated with the initial municipal unemployment rate; and (iii) negatively correlated with the initial share of municipal employment in manufacturing. The first result is consistent with evidence from cross-national studies and other studies of municipal growth that human capital is critical to healthy economic growth, as workers with more human capital are better able to adopt new technology and use available capital more efficiently. …

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