PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Economic Growth in the States: Policy Matters

By at 10 May, 2019, 11:20 am

by Raymond J. Keating-

The U.S. Bureau of Economic Analysis released its latest estimates on real GDP growth in the states – for the fourth quarter 2018 and for all of 2018 – early this month.

What might strike some people unfamiliar with these numbers is how much growth varies across the U.S. For example, real GDP growth in the states registered a high of 6.6 percent in Texas during the fourth quarter 2018 versus a low of 0 percent in Delaware. And for all of 2018, the top growth state was Washington at 5.7 percent compared to -0.3 percent in Alaska.

Of course, the rate of economic growth in any state or for the nation depends upon a wide array of factors. Part of the story is public policy. Specifically, do public policy decisions made by lawmakers work in favor of or against economic growth? And when considering such matters, it is crucial to look at how policy affects entrepreneurship and investment, as these are key engines of economic growth.

That’s exactly what the Small Business & Entrepreneurship Council has done in the just-published “Small Business Policy Index 2019: Ranking the States on Policy Measures and Costs Impacting Small Business and Entrepreneurship.” This is the 23rd annual edition of the report (view an interactive map with rankings and summaries), and the states are ranked according to 62 different measures capturing government-imposed or related costs that impact small business, entrepreneurship and investment.

In terms of economic growth in the states and the rankings on the Index, we reported the following:

Real average annual economic growth from 2010 to 2017 among the top 25 states ranked on the 2019 “Small Business Policy Index” averaged 1.76 percent, which was 38 percent faster than the 1.28 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 bottom 25 states.

So, let’s take a look at a few points in terms of just-released 2018 growth numbers and the Index:

The state with the fastest growth in the fourth quarter 2018 was Texas, which ranked first – the very best – among the 50 states on the “Small Business Policy Index 2019.”

●  Among the nine states that had a real growth rate better than 3 percent in the fourth quarter 2018, all nine ranked among the top 24 states on the Index.

●  In terms of fourth quarter real GDP growth, all of the top 10 growth states ranked among the top 24 states on the Index, and 5 of the top 10 growth states ranked among the top 10 on the Index.

●  As for the ten slowest growth states in the fourth quarter 2018, seven ranked among the 18 worst on the Index.

●  Looking at growth for all of 2018, seven of the top 10 growth states ranked among the top 12 on the Index.

●  As for the 11 states that had real GDP growth of 3 percent or better for 2018, eight ranked among the top 12 states on the Index.

●  As for the 10 slowest growth states for all of 2018, seven ranked among the 22 worst ranked states.

●  Also, the fastest growing state for all of 2018 was Washington, which ranked tenth best on the Index.

Again, while public policy certainly is not the only factor influencing economic growth, there’s little debate that policy does matter, and imposing greater burdens on small business, entrepreneurship and investment is counter-productive if one seeks a strong state economy.

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

 

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