A Spatial Analysis of Incomes and Institutional Quality: Evidence from US Metropolitan Areas
36 Pages Posted: 26 Mar 2014
Date Written: March 25, 2014
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 while economic freedom and income levels are directly and positively related, increases in economic freedom in one area result in negative indirect effects on income levels in surrounding areas. In addition, we find that economic freedom has an insignificant relationship with economic growth.
Keywords: institutional quality, economic freedom, income levels, income growth, spatial dependence, spillovers
JEL Classification: O43, O12
Suggested Citation: Suggested Citation