On Persistent Poverty in a Rich Country

Despite robust economic growth in the post-War era, there remain deep pockets of persistent poverty in the United States. We examine the origins of permanent income differences across counties using contemporaneous and historical Census data. Using a panel of U.S. counties from 1960 to 2000 and a long-difference dynamic panel-data estimator, we first test whether aggregate production technologies and rates of income convergence are the same across persistently poor and non-poor regions. We then use data from the late 19 and early 20 centuries to estimate the relative roles of culture, geography, institutions, and human capital in accounting for residual income growth differences across counties. We find evidence of significant regional differences in production technologies, but rates of convergence, which range from 7 to 9 percent, do not differ significantly between poor and non-poor regions. Illiteracy rates at the close of the 19 century are a key determinant of persistent poverty status at the close of the 20 century, suggesting long-term negative consequences for low initial human capital among persistently poor counties.