TESTING NEOCLASSICAL CONVERGENCE IN REGIONAL INCOMES AND EARNINGS

The time-series properties of per capita income and per capita earning s in the regions of the United States are tested for consistency with the neoclassical growth model's prediction of convergence. We find evi dence for per capita income convergence for U.S. regions during the 19 29-90 period after allowing for a trend break in 1946. These findings support the neoclassical model's prediction of convergence. The eviden ce for per capita earnings convergence is, however, less conclusive. S hocks to per capita earnings are found to be more persistent than shoc ks to per capita income. This implies that the regional distribution o f transfer payments tends to smooth the effects of deviation on relati ve regional per capita earnings and reinforce trends in per capita inc ome convergence.