HIGH GROWTH STATES
Employment, income and Gross State Product (GSP) expanded in 15 states at rates greater than the U.S. average during the last economic expansion (March 1991-March 2001), federal data show. Arkansas is not a high growth state and its policymakers would benefit from analyzing the factors contributing to prosperity in these 15 states.
Most high growth states were in the western and southern U.S. They include (West) Arizona, Colorado, Idaho, Oregon, Utah, Washington; and (South) Georgia, Kentucky, North Carolina and Tennessee. Other high growth states were (New England) New Hampshire, (Great Lakes) Minnesota and Wisconsin, (Plains) South Dakota and (Southwest) Texas.
Why use employment, income and GSP to measure economic performance? They are broad indicators of whether an economy is expanding or contracting. The methodology in this memo is similar to Policy Foundation research in a 2002 report in The Arkansas Democrat Gazette (“State’s economy failing to keep pace with region,” Oct. 20, 2002).
Harvard economist Gottfried Haberler, in his classic interwar (1937) business cycle study1, defined prosperity as “a state of affairs” in which income, production and employment “are high and rising.” By contrast, income, production and employment decline in a depression. The term “depression,” in Haberler’s book, is similar to modern use of “recession.”
The Cambridge-based National Bureau of Economic Research uses income, production and employment data to analyze the U.S. economy. The NBER, which also uses trade data and Gross Domestic Product (GDP), found the U.S. economy grew from March 1991 to March 2001.
The Policy Foundation’s calculations are based on state income, real GSP and employment data. Income and GSP data is available (U.S. Bureau of Economic Analysis, www.bea.gov) on an annual basis for the 1991-2000 period. The year 2000 is used because the economy expanded that year but contracted for nine months in 2001. Employment data is available (U.S. Bureau of Labor Statistics, www.bls.gov) on a monthly basis and was examined for the March 1991-March 2001 period.
U.S. per capita disposable personal income expanded 45 percent in the period. It grew in all 15 high growth states with Colorado recording the highest rate of growth (59 percent).
Finding: Real GSP
U.S. real (adjusted-for-inflation) GSP expanded 40.5 percent in the period. It grew in all 15 high growth states with Arizona recording the highest rate of growth (87 percent).
U.S. total nonfarm employment expanded 22 percent in the period. It grew in all 15 high growth states with Arizona recording the highest rate of growth (52 percent).
A Note on
Nevada and New Mexico
But per capita disposable income in Nevada (43 percent) and New Mexico (39 percent) expanded less than the U.S. average (45 percent). Nevada and New Mexico are not classified as high growth states for this reason.
Arkansas employment growth in the period was greater than the U.S. average. Arkansas per capita disposable personal income and real GSP growth was less than the U.S.
No one factor is responsible for economic expansion in the 15 high growth states. Factors influencing economic development include tax rates; education, including skilled work force; infrastructure; level of regulation; trade policy; and even monetary policy. State policymakers would benefit from analyzing each of these factors as they apply to Arkansas’ business climate.
-- Greg Kaza