Overall US and Census Region β-Convergence 1963–2015 Controlling for Spatial Effects

Economic growth and β-convergence of American states 1963–2015 is analyzed adjusting for significant spatial autocorrelation with system-GMM by considering the four Census macro regions individually. The Census regions converged over the last 50 years with both physical and human capital contributing to growth. In an early era (1963–1983), convergence was higher with rates varying between 4.7 and 1.5%, while for a later era (1984–2015) the rate was below 1% which is below the standard of 2% but fits well with a neoclassical growth paradigm. The Midwest region had the highest rate of convergence in the early era but then had almost no convergence in the later era with the other three regions having very low but positive convergence. Unlike many earlier studies, human as well as physical capital accumulation empirically supports economic growth as theory predicts.