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Poverty, Income Inequality and Economic Growth in U.S. Counties: - page 15 / 33

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on the size of the family and age of the family members. In 1999, the threshold was fixed

at US $ 8,501 and in 1979, it was US $ 3,912 (the figures are adjusted for inflation).

4

Income inequality is measured by constructing the Gini index, as explained in section 3.

Since I measure poverty and income inequality (the interest variables) at their initial

values, I largely eliminate the problem of endogeneity.5 The income level in 1979

captures what is called the “conditional convergence”, which states that counties with a

lower initial level of income grow faster and catch-up with rich counties over time.

P V i , t h e p o p u l a t i o n c h a r a c t e r i s t i c s , i n c l u d e p e r c e n t a g e o f w h i t e p o p u l a t i o n i n

each county and percentage of manufacturing workers (to control for initial level of

i n d u s t r i a l i z a t i o n ) i n 1 9 7 9 . G V i , m e a s u r e s t h e l o c a l g o v e r n m e n t p e r c a p i t a g e n e r a l

e x p e n d i t u r e i n e a c h c o u n t y i n 1 9 7 9 . 6 H i t , m e a s u r e s t h e r a t e o f c h a n g e i n a d u l t p o p u l a t i o n

with a bachelor’s degree or higher, between 1979 and 1999 (which proxies for the change

i n h u m a n c a p i t a l ) . N i t , m e a s u r e s t h e g r o w t h r a t e o f p o p u l a t i o n b e t w e e n 1 9 7 9 a n d

1 9 9 9 . i S F , a s s i g n s s t a t e d u m m i e s t h a t c a p t u r e s t h e u n o b s e r v e d s t a t e - s p e c i f i c

c h a r a c t e r i s t i c s ( s u c h a s P o l i c i e s o r l a w s ) , a n d e i i s a r a n d o m e r r o r t e r m . I e m p l o y s p a t i a l

regression to estimate equation (3), which is explained in detail under “spatial model”.

The model that I use has some limitations. First, it does not include variables that

capture the effect of development policies, which might affect growth, poverty, and

inequality separately, or in any combination. However, I believe that including the state

4 For more details on the poverty-thresholds, please visit http://www.census.gov/hhes/www/poverty/poverty.html.

5 Most studies that analyze the effects of income inequality on economic growth use the initial conditions to eliminate the problem of endogeneity (Alesina and Rodrik (1994), Persson and Tabellini (1994) and Barrro (1999), among many others).

6 The reduced form that Bhatta (2001) estimates does not include the population and government variables. However, Rupasingha et al. (2002) have used these variables as controls to estimate county-level economic growth.

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