Economic Growth in the States: Yes, Policy Matters

By at 25 July, 2018, 8:22 am

Small Business Insider


by Raymond J. Keating-

First quarter real GDP growth in the U.S. was lackluster, with growth registering a meager 2.0 percent. However, that, of course, does not mean that growth was the same across the nation. Indeed, as we see in the state GDP report from the U.S. Bureau of Economic Analysis, growth can and does vary widely from state to state.

The BEA released its report on first quarter state GDP on July 24th, and real growth again varied considerably across the nation. Indeed, while the state of Washington topped the states with an annualized real growth rate of 3.6 percent (double to national estimate of state GDP growth of 1.8 percent), North Dakota’s economy shrank by 0.6 percent (mining and construction were hit hard). By the way, North Dakota was the only state to experience a decline in real state GDP.

The BEA reported that some key sectors contributed to growth across much of the nation, such as real estate, information services, and manufacturing.

And as SBE Council makes clear in its “Small Business Policy Index” and “Small Business Tax Index,” policy differences impact incentives for starting up, investing in, and operating businesses, as well as living and seeking opportunity in each state. We do see real effects.

For example, as reported in the latest “Small Business Policy Index”:

“Real average annual economic growth from 2010 to 2016 among the top 25 states ranked on the 2018 “Small Business Policy Index” averaged 1.77 percent, which was 23 percent faster than the 1.44 percent average rate for the bottom 25 states. So, on average, economic growth performed markedly better during this poor recovery among the top 25 states on the Index compared to the 50-state average (1.60 percent) and compared to the bottom 25 states.”

And while growth can vary considerably from quarter to quarter, it’s interesting to note a point that jumps off the pages of this latest state GDP report. That is, during the first quarter of this year, each of the half-dozen fastest growing states ranked in the top 13 states in the “Small Business Policy Index.”

Table 1: Fastest Growing States and Small Business Policy Index Ranking

State First Quarter Real Growth Rate and Ranking Rank on the 2018 “Small Business Policy Index
Washington 3.6% (1st) 7th
Utah 3.2% (2nd) 10th
South Dakota 3.1% (3rd) 3rd
Colorado 3.0% (4th) 13th
Wyoming 2.9% (5th) 4th
Texas 2.9% (6th) 2nd


In the end, a wide range of factors come into play when it comes to economic growth, but make no mistake, policy – such as taxes and regulations – matter as they impact the incentives and costs of growth-generating undertakings like entrepreneurship and investment.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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