The Impact of the U.S. Federal Government's Expenditure on Regional Growth - Towards More Comprehensive Measurements

Abstract

This dissertation is a comprehensive study of governmental expenditures and their impact on economic growth of the United States economies; the research will contribute to existing literature with the use of a unique database that collects actual expenditures and is not based on proxies. The first chapter is a review of the various strands of the theoretical literature and analyzes the results of empirical estimations in Europe and in the U.S. where regional development policies are already well established, as well as providing recommendations for future research in this field. The second chapter relies on a Cobb-Douglas production function approach to analyze the role of physical and human capital on the US states economies over 2000-2008. It makes use of recent theoretical developments on the role of inter-state technological spillovers on income. In addition, the chapter adopts a unique set of data on publicly funded investments in physical and human capital that brings new insights into the traditional measurements of the Mankiw-Romer-Weil model of regional income distribution and regional growth dynamics. The third chapter analyzes the impact of the actual amounts of all federally funded development programs on the growth rate of U.S. counties. Relying on a conditional neoclassical beta convergence, it measures the impacts of the U.S. federal government expenditures as overall spending, for each of 15 types of federal spending, and by agency-based classification from 2000-2007. The chapter accounts for the significant difference in the growth dynamics of the metropolitan and non-metropolitan counties and potential heterogeneity of public expenditures. The forth chapter evaluates the hypothesis that federal grants crowd-out state and local government spending using a cross-classification of actual federal and state-local types of expenditures. The literature has not reached an empirical conclusion, with the majority of the empirical research concluding a crowding-in of federal spending. Therefore, this study incorporates recent discussions about potential endogeneity of federal funds and lack of flexibility of state-local budgets due to institutional or political commitments using a dynamic panel of U.S. states over 1997-2009.