How important are human capital, physical capital and total factor productivity for determining state economic growth in the United States: 1840-2000?

This paper creates a new data set on physical capital at the state level for the United States from 1840 - 2000. Combining these new data with state level human capital and output data enables us to estimate the contribution of aggregate input growth and total factor productivity (TFP) growth to output growth across states from 1840 - 2000, and to decompose the cross-sectional variance of output growth into the component explained by variation in aggregate inputs and the compenent explained by variation in TFP. As our data are across states instead of across countries, one would expect less institutional heterogeneity in this study than in studies using cross-country comparisons. We find that that 65% of average output growth from 1840 - 2000 is accounted for by average input growth. We find a plausible upper bound of output variation explained by TFP growth is 91%, while a plausible upper bound of output variation explained by input growth is 62%. Interestingly, even at the state level where the unit of observation is more homogeneous, TFP continues to be an important determinant of both the growth of and the variation of output per worker.