Convergence: A Spatial Dynamic Panel Data Approach

A spatial dynamic panel data approach is adopted to study regional growth convergence in the U.S. economy. In the neoclassical growth model, regions and countries are assumed to be independent from each other, which may not be valid in the real world. We introduce technological spillovers into the neoclassical framework, showing that the convergence rate is higher and there is spatial interaction. By examing annual data on personal state income spanning the period of 1930-2006 for the 48 contiguous states, we obtain empirical results that are consistent with the theoretical prediction.