A spatial analysis of incomes and institutional quality: evidence from US metropolitan areas

Abstract

We use the Stansel (2013) metropolitan area economic freedom index and 25 conditioning variables to analyze the spatial relationships between institutional quality and economic outcomes across 381 U.S. metropolitan areas. Specifically, we allow for spatial dependence in both the dependent and independent variables and estimate how economic freedom impacts both per capita income growth and per capita income levels. We find that economic freedom and per capita income growth and income levels are directly and positively related. Furthermore, we find that the total (direct plus indirect) effects on all metropolitan areas are positive and larger in magnitude than the direct effects alone, indicating that freedom-enhancing reforms in one metropolitan area lead to positive-sum games with neighboring metropolitan areas.

Mass Layoffs, Manufacturing and State Business Climates: Does State Policy Matter?

“…For brevity purposes, our discussion on the derivation of this model is limited. We direct the reader to these two studies, as well as LeSage and Pace () and Bologna, Lacombe, and Young () for a more complete discussion of this model.…”

Economic Freedom and Growth in U.S. State‐level Market Incomes at the Top and Bottom

“…Furthermore, results from spatial regressions reveal significant negative spatial dependence between home state incomes at the top and bottom and neighboring economic freedom. Thus, I also find some support for Bologna et al (2014).…”

“…However, failure to control for cross-border spillover can result in estimates that are biased and inconsistent (Corrado and Fingleton 2012). In light of recent findings by Bologna et al (2014), discussed in Section I, I revisit some of the regressions discussed above, this time controlling for relationships with neighboring states' economic freedom and income growth. Table 6 reports spatial lag coefficient estimates for the top 10% and bottom 90% income growth regressions.…”

“…Finally, I examine spatial aspects of the relationship between economic freedom and income growth at the top and bottom. Recently, Bologna et al (2014) found, for U.S. metropolitan statistical areas (MSAs), that increases in economic freedom are associated with personal income gains in the MSAs undergoing reforms, but losses in neighboring MSAs. The authors suggest "business-stealing"-the movement of capital and labor as businesses and customers relocate across borders to more favorable institutional environments-as a possible explanation.…”

Economic freedom and growth across German districts

“…Their results highlight the beneficial effects of greater economic freedom on both the level and growth of economic activity. And fourth, Bologna et al (2016) examine the spatial relationship between institutional quality and economic outcomes across 381 US metropolitan areas using the Stansel (2013) index of economic freedom for MSAs, allowing for direct and indirect effects of economic freedom on growth and income levels. Their findings suggests that greater economic freedom improves growth and income levels, and that combined direct and indirect effects are quantitatively larger than the direct effects alone, suggesting a strong spillover effect of economic freedom from neighbouring areas.…”