In the decades after World War II and up into the 1980s, the US economy experienced regional convergence: that is, the economies and incomes in poorer regions (like the US South) tended to grow more quickly than the economies of richer regions (like the US North). But in the 1980s, this pattern of regional convergence slowed down.

A couple of recent research papers have investigated the shift. Peter Ganong and Daniel W. Shoag have published “Why Has Regional Income Convergence in the U.S. Declined?” in the Journal of Urban Economics
 (November 2017,pp. 76-90). The paper isn’t freely available online, but some readers will have access through library subscriptions, and there is a July 2016 version freely available as a Hutchins Center working paper. Elisa Giannone adds some aditional pieces to the puzzle in “Skilled-Biased Technical Change and Regional Convergence” (January 4, 2017), written as part of her doctoral dissertation.

 Both papers are tackling the same basic fact pattern, although with different data sources. Thus, Ganong and Shoag write:

“The convergence of per-capita incomes across US states from 1880 to 1980 is one of the most striking patterns in macroeconomics. For over a century, incomes across states converged at a rate of 1.8% per year. Over the past thirty years, this relationship has weakened dramatically, as shown in Figure 1.1 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.”

Here’s a figure to illustrate the pattern. In the left-hand panel, the horizontal axis measures the per capita income of states in 1940. The vertical axis shows the growth rate of state per capita income from 1940-1960. The downward-sloping line shows that the lower-income states in 1940 tended to have faster growth in the two decades that followed. The right-hand panel does the same exercise, but this time starting in 1990 and running through 2010. The downward-sloping but much flatter line in the right hand panel shows that while the lower income states in 1990 did grow a bit more quickly in the next two decades, the rate of convergence had become much slower.