Economic Growth Disparities Within the United States

Since the financial crisis of 2008 and 2009, the United States economy has struggled to stage a full-scale recovery, with growth rates that remain well below pre-crisis levels.  While the US economy has outperformed most other developed economies since the crisis, its recovery remains weak due to a number of internal and external factors that have lowered the near-term growth potential of the world’s largest economy.  However, some areas of the United States have staged stronger recoveries than others, as the vast size of the US economy hides many internal disparities.  In contrast, many areas of the United States have struggled to record much growth at all in recent years, fueling the discontent seen in the US during this year’s election campaign.

In terms of economic growth, there is a relatively clear divide between the faster-growing western half of the United States and the slower-growing eastern half of the country.  Over the past five years, the states west of the Mississippi River have grown by an average of 2.8% per year, whereas the states to the east of the Mississippi River have grown by an average of just 1.7% per year.  In the western US, growth rates have been driven by a combination of factors, including population growth, the presence of high-tech and fast-growing sectors of the economy, as well as the region’s ties with the fast-growing markets of Asia.  Meanwhile, many states in the West have governments that have been very pro-active in attracting investment, a key reason why the economy of the state of Texas has grown by an average of 4.6% per year since 2011, the best performance of any large US state during that period.  Meanwhile, states such as California, Washington and Colorado also have performed better than the national average due to the huge number of new and fast-growing businesses based in those states.

East of the Mississippi River, economic growth levels have been much more subdued in recent years as the economic recovery in this region has struggled to take hold.  This is most evident in the Southeast and the Mid-Atlantic, two regions that had been driving economic growth in the United States prior to the financial crisis, but are now the two slowest-growing regions in the country.  In fact, the economies of states such as New York, Florida, Georgia and North Carolina have all expanded at a pace below the national average since the financial crisis as their service sectors continue to struggle.  In fact, the only two states east of the Mississippi to grow at a pace in excess of the national average over the past five years are Ohio and Tennessee, two states that have been very aggressive in attracting investment in recent years.  Elsewhere, growth rates have been relatively low, fueling discontent and threatening to lead to a major population shift to the western US in the years ahead.

As has been mentioned, these economic growth disparities are caused by a number of factors.  First and foremost are demographics, as not only are the populations of the western states growing at a faster pace than the national average, but these states are also attracting many of the world’s brightest and most highly-skilled workers, fuelling entrepreneurship in this region.  Meanwhile, those states with faster-growing industries such as information technology and the oil and gas sector have benefitted from their strong performances in recent years.  Also, government policy cannot be overlooked, as those states that have been aggressive in attracting investment and promoting trade have generally outperformed more static states in recent years.  Altogether, the disparities between the different regions in the US and the flexibility of the US labor force continue to be major advantages for the US economy in terms of its global competitiveness.  However, this flexibility could come at a significant cost to some of the slower-growing states in the US, shifting even more economic power to the western United States.