fbpx

Latest Posts

Home

Facebook

Twitter

Search
About

Minnesota’s below average economic growth is not because of ‘convergence’

On Monday, I wrote about how Minnesota’s economic growth has lagged that of the US generally, whether you look at a period starting in 2000 or 2010.

One response to this is that Minnesota’s below average GDP growth is the result of an already high level of GDP. The economic theory of convergence holds that, all else being equal, poorer economies’ per capita incomes will tend to grow at faster rates than those in richer economies; they will catch up, in other words.

The evidence once supported this theory. During much of the 20th century, poorer states and regions in America caught up with richer ones at a rate of about 2% per year, a figure sometimes called the “iron law of convergence.”In 1930, for example, workers in Mississippi earned just 20% of the wages of workers in New York. By 1980, the proportion had increased to 65%. In 1991, the economist Olivier Blanchard wrote, “The convergence of income across regions in the United States is a robust fact.” And, back then, it was.

More recent research casts doubt on this. While incomes across states converged at a rate of 1.8% per year from 1880 to 1980, there has been hardly any convergence at all since then. Specifically, as the economists Peter Ganong and Daniel W. Shoag write, “The convergence rate from 1990 to 2010 was less than half the historical norm, and in the period leading up to the Great Recession there was virtually no convergence at all.” Other recent research by economist Elisa Giannone finds that convergence has declined in cities too. Between 1940 and 1980, poor cities caught up with rich ones at a rate of 1.4% a year. Since then, they have lagged behind.

In other words, the “convergence,” which is supposed to explain Minnesota’s slow rate of economic growth relative to the US average, has not been happening over the period covered in our report. Our economic growth is lagging, and “convergence” does not explain it.

John Phelan is an economist at the Center of the American Experiment. 

Comments

Subscribe

Categories

Upcoming Events

  • Morning in Minnesota: St. Cloud

    Location: St. Cloud

    Sign up HERE! Courtyard by Marriott St. Cloud 404 West Saint Germain Street St. Cloud, MN, 56301 Please join Center of the American Experiment on Tuesday, July 21 for breakfast with Center policy fellow and education expert Catrin Wigfall as she explains K-12 education in the state and its persistent disparities despite decades of increased spending. Following her presentation, Catrin will lead a Q&A session. 7:30 AM Check In and Breakfast 8:00 AM Presentation 9:00 AM Conclude   Catrin Wigfall is a Policy Fellow at Center of the American Experiment. She is also the director of EducatedTeachersMN and EmployeeFreedomMN. Catrin’s…

    Register Now
  • Kristi Noem: The Courage to Reject a Shutdown

    Location: Online

    Sign up HERE! Join us Wednesday, July 8th for an interview with South Dakota Governor Kristi Noem over Zoom. In response to COVID-19, Noem defied the norm of a statewide shutdown and let South Dakotans choose for themselves what safety precautions to take. Tune in to this live online event to hear how Governor Noem preserved her state’s economy while still keeping citizens safe. Wednesday, July 8th at Noon CT Sign up HERE!  

    Register Now
  • Morning in Minnesota: Marshall

    Location: Marshall Golf Club

      Sign up for this event HERE! Please join Center of the American Experiment on Thursday, July 16 at Marshall Golf Club for a breakfast with Center economist, John Phelan, as he discusses Minnesota’s economic future. Following his presentation, John will lead a Q&A session. 7:30 AM Check In and Breakfast 8:00 AM Presentation 9:00 AM Conclude John Phelan is a graduate of Birkbeck College, University of London, where he earned a BSc in Economics, and of the London School of Economics where he earned an MSc. He worked in finance for ten years before becoming a professional economist. He…

    Register Now