Growth in U.S. States, 1977-2001: How Much Do Foreign Direct Investment, Recessions, Human Capital, and Physical Capital Matter?

The current "Great Depression" climate warrants more analyses of how and to what degree gross state production (GSP) is impacted by factors such as states Foreign Direct Investment (FDI), Recessions, Human Capital, and Physical Capital. There is a rich literature in the association between GSP and its main predictors using OLS regression technique, most of the existing studies models, however, paid little attention to the potential spatial dependency in the data. Because correlation between predictors of spatial units (e.g., states) is not considered, the model estimates might not be efficient. In this study, GSP in the 48 states in the United States between 1977 and 2001 is modeled by OLS regression, spatial error regression, and spatial lag regression. Results from three model strategies will be compared. The pattern of growth in the 48 U.S. states will then be explained after controlling for spatial dependence in the data.