Myrdal contra Ohlin: Accounting for the Sources of U.S. County Per Capita Income Convergence Using a Flexible Decomposition Approach

The neoclassical perspective, exemplified by Bertil Ohlin, predicts the fact of interregional per capita income convergence and is therefore often invoked in explaining its causes. However, convergence is also explained by other perspectives, such as Gunnar Myrdal's circular and cumulative causation. Applying a flexible growth-accounting decomposition to nominal per capita income changes in U.S. counties (1969-1996), this paper finds that ß convergence was generated by government transfer and wage spending, rather than the private sector forces postulated by Ohlin. Migration data suggest that the movement of retirees from rich counties to poor has been an important source of convergence.