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Free Trade, Growth & Convergence

Virginia Postrel has a must-read piece in the New York Times today. It discusses a study of convergence of income among the states, by Kris James Mitchener and Ian W. McLean in The Journal of Economic History.

She makes some important points.

1) The U.S. is a giant free trade zone.

2) In the 19th Century there were enormous differences in the wealth of the states: "A century ago, the poor states were like third world countries compared with the richest states."

3) The poor states have closed the gap with the rich states by growing faster, but the rich states remain richer. Trade between the states has not pulled the rich states down.

4) Much of the convergence in income took place in the South, but only after 1960: "even in a free trade region like the United States, different legal institutions matter. Most of the South's improvement occurred after 1960, around the time the civil rights movement ended official segregation. Jim Crow laws had hurt the region's productivity, Professor Mitchener suggests, by limiting the ability of black Southerners to build skills and savings.

"There are still differences out there, but those differences have fallen significantly - and not at the expense of rich states," Professor Mitchener says. "The poorer states have caught up. The pie isn't a fixed pie."

There is no evidence here that free trade among the states has harmed the rich states. There is evidence that legal institutions matter a great deal. The evidence keeps piling up. Go to the link and look at the graphic depicting convergence in regional income. Its impressive.