Are Regional Incomes Converging in the U.S.? Evidence from Panel Unit Root Tests with Heterogeneous Structural Breaks

This paper empirically tests if U.S. regional per capita incomes are stochastically converging. We advance the issue by employing a LM panel unit root test that allows for region-specific structural breaks in compensating differentials. Both the number and location of the breaks are endogenously determined for each region. Combined with the findings of Carlino and Mills (1993) and Loewy and Papell (1996), these results provide compelling evidence that U.S. regional incomes are conditionally converging.