Regional economic convergence: Do policy instruments make a difference?

The relationship between public capital, regional output and private sector productivity has been an issue of considerable interest in the regional development literature. There have however been few studies that develop linkages between these issues and the broader literature on economic convergence. This paper presents an innovative methodology to examine the process of regional economic convergence across U.S. states. We examine the effects of economic variables such as human and public capital in the convergence process, and control for business cycle and region specific effects in the analysis. Further, specification problems arising from spatial dependence are also addressed. Results from the empirical analysis show that the speed of convergence is influenced by region specific characteristics and the availability of trained labor in neighboring regions.