Income Growth in the Rural Income Growth in the Rural Midwest: Where Is There a Midwest: Where Is There a

Problem?Problem?

John Miranowski

Co-Authors:

Bruce Babcock, Dermot Hayes, and Daniel Monchuk

Introduction Introduction

Origins of StudyOrigins of Study Why are many rural counties left behind?Why are many rural counties left behind? What drives rural economic development What drives rural economic development

in Midwestern counties?in Midwestern counties? Analysis to identify important policy or Analysis to identify important policy or

control variables for rural development in control variables for rural development in MidwestMidwest

““People-based” vs. “Place-based” vs. People-based” vs. “Place-based” vs. “Business-based” policies “Business-based” policies

Current Value Added Approach in Current Value Added Approach in Rural MidwestRural Midwest

Local, State and USDA groups focus on subsidizing Local, State and USDA groups focus on subsidizing investments in businesses, such as ethanol and bio-investments in businesses, such as ethanol and bio-dieseldiesel

Some recent interest in water and land based recreation, Some recent interest in water and land based recreation, including bike trailsincluding bike trails

Commodity groups are turning their focus to livestock Commodity groups are turning their focus to livestock and biofuelsand biofuels

Governor and State leaders are interested in biotech and Governor and State leaders are interested in biotech and crop transformation, as well as some interest in reducing crop transformation, as well as some interest in reducing taxestaxes

ISU research and extension in farmers markets, ISU research and extension in farmers markets, specialty crops, and sustainable agriculture systemsspecialty crops, and sustainable agriculture systems

The ProblemThe Problem

Isolated rural counties in the Midwest fail Isolated rural counties in the Midwest fail to attract investment capital due to lack of to attract investment capital due to lack of agglomeration economies and market agglomeration economies and market accessaccess

Agriculturally dependant counties in the Agriculturally dependant counties in the Midwest typically do not generate enough Midwest typically do not generate enough economic activity to retain the human economic activity to retain the human capital they produce and may not provide capital they produce and may not provide attractive environment for investmentattractive environment for investment

ApproachApproach

Take a broad, data-based approach to Take a broad, data-based approach to Midwest county income growth:Midwest county income growth:

1) examine a range of variables1) examine a range of variables2) address spatial aspects associated with 2) address spatial aspects associated with local and regional economic growthlocal and regional economic growth

Attempt to explain total county income Attempt to explain total county income growth for the period 1990-2001, growth for the period 1990-2001, based based on initial conditions in 1990on initial conditions in 1990

• Minnesota, Wisconsin, Illinois, Iowa, Missouri, Minnesota, Wisconsin, Illinois, Iowa, Missouri, Kansas, Nebraska, and South Dakota Kansas, Nebraska, and South Dakota

Measure of SuccessMeasure of Success

Considered alternative measures Considered alternative measures local/county economic vitalitylocal/county economic vitality

Settled on growth in Total County IncomeSettled on growth in Total County Income Measure captures both population and per Measure captures both population and per

capita income growthcapita income growth Measure ignores the investment in human Measure ignores the investment in human

capital of those who are educated and capital of those who are educated and leaveleave

Total County Income GrowthTotal County Income Growth1990-20011990-2001

- 0 . 8 2 2 - 0 .3 4 9

0 .3 4 9 - 0 .4 5 5

0 .4 5 5 - 0 .5 6 7

0 .5 6 7 - 1 .0 8 5

1990 County Population1990 County Population

4 6 2 - 6 7 5 06 8 4 8 - 1 4 8 3 51 4 9 0 9 - 3 2 4 9 8

3 2 5 0 8 - 5 1 0 5 0 6 7

1990 Dependence on County 1990 Dependence on County Income from FarmingIncome from Farming

1 - 1 1 01 1 1 - 3 7 03 7 1 - 6 2 96 3 0 - 7 3 9

Growth Livestock Cash ReceiptsGrowth Livestock Cash Receipts

- 2 . 1 2 3 6 2 - - 0 . 2 7 9 6 8 3- 0 . 2 7 9 6 8 3 - - 0 . 0 7 7 3 0 8- 0 . 0 7 7 3 0 8 - 0 . 1 2 7 9 6 10 . 1 2 7 9 6 1 - 2 . 4 0 1 0 0 8

Recreation Amenity index (own and Recreation Amenity index (own and surrounding counties)surrounding counties)

1 - 1 1 01 1 1 - 3 7 03 7 1 - 6 3 0

6 3 1 - 7 3 9

COE Swimming Area (own and COE Swimming Area (own and surrounding counties)surrounding counties)

01 - 23 - 67 - 2 4

Property Taxes per CapitaProperty Taxes per Capita

0 .0 3 1 - 0 .4 8 40 .4 8 4 - 0 .6 2 70 .6 2 7 - 0 .7 9 50 .7 9 5 - 2 .7 6 6

State Income Taxes per CapitaState Income Taxes per Capita

$49

$471

$409

$570

$715

$399 $477

$764

(I) (II) Variable (ln) Per capita Income 1990 -0.023 -0.030 (-0.50) (-0.63) (ln) Population 1990 0.0455*** 0.044*** ( 5.47) ( 5.10) Change in Livestock Receipts 1990-2001 0.0245** 0.045*** ( 2.48) ( 4.45) Share of CRP (1990 CRP acres/1987 crop acres) 0.129** 0.154** (2.08) (2.40) (ln) Percent of Pop. 65+ 1990 -0.219*** -0.248*** (-5.22) (-5.67) (ln) Percent of Population 20-34, 1990 -0.130** -0.186*** (-2.47) (-3.44) (ln) Percent of Population under 20, 1990 0.022 0.097 (0.25) (1.10) (ln) Percent of Pop. 25+ with College Degree, 1990 -0.001 0.014 (-0.06) ( 0.66) Percent of County Income from Farming, 1990 -0.759*** -0.755*** (-9.21) (-9.08) (ln) Percent of Population commuting 30+ mins, 1990 0.046*** 0.022* ( 3.86) ( 1.87) (ln) Non-Farm Proprietors Per Capita, 1990 0.120*** 0.115*** ( 5.87) ( 5.44) Neighboring a Metro County (=1) 0.027*** 0.032** ( 2.08) ( 2.38) County Population 50,000+ (=1), 1990 -0.084*** -0.083*** (-4.57) (-4.31)

Interstate within the county (=1) 0.005 0.005 ( 0.55) ( 0.53) University Present in the County (=1) 0.021 0.027 ( 0.52) ( 0.64) Illinois Dummy -0.057*** (-3.35) Kansas Dummy -0.028* (-1.69) Minnesota Dummy 0.087*** ( 4.19) Missouri Dummy -0.002 (-0.12) Nebraska Dummy -0.022 (-1.19) South Dakota Dummy 0.08*** ( 3.62) Wisconsin Dummy 0.081*** ( 4.02)

County Amenity Variables Amenity Variable - Home County plus nearest 4 counties 0.0025** 0.0053*** (2.46) (5.70) COE Swimming Areas - Home plus nearest 4 counties 0.0034** 0.004** (2.27) (2.57) County Tax Variables Property Taxes Per Capita, 1992 -0.051** -0.043** (-2.35) (-2.09) Revenue from State Government Per Capita, 1992 -0.081*** 0.027 (-2.94) ( 1.16) Government Salaries and Wages Per Capita, 1992 -0.053*** -0.098*** (-2.60) (-4.83) Composite State Tax Variable - Per Capita, 1992 -0.069* (-1.81) Constant -0.04 -0.097 (-0.02) (-0.36) R -Square 0.7095 0.6733 Adjusted R-Square 0.6984 0.6637 N 734 734

Summary and Policy ImplicationsSummary and Policy Implications

Recreational amenities and bike trails have positive Recreational amenities and bike trails have positive impacts on county income growthimpacts on county income growth

• Amenities in surrounding counties also important – regional vs. local Amenities in surrounding counties also important – regional vs. local approach to amenity developmentapproach to amenity development

Counties with reliance on farm income (and commodity Counties with reliance on farm income (and commodity program payments) have not performed wellprogram payments) have not performed well

• Not a viable rural development strategy as frequently advocatedNot a viable rural development strategy as frequently advocated

However, counties with growing livestock revenues However, counties with growing livestock revenues (value adding on-farm) have experienced greater county (value adding on-farm) have experienced greater county income growthincome growth

• Subject to being accomplished in environmentally-sensitive mannerSubject to being accomplished in environmentally-sensitive manner

Summary and Policy ImplicationsSummary and Policy Implications

Government efforts and approaches to achieve rural Government efforts and approaches to achieve rural development not well directeddevelopment not well directed

High taxes, state transfers to counties, and local High taxes, state transfers to counties, and local employee payrolls deter growth employee payrolls deter growth

Dramatic tax cuts are not realistic option Dramatic tax cuts are not realistic option • Taxes support education of those about to leave and community Taxes support education of those about to leave and community

services for those unable to leave (aging population)services for those unable to leave (aging population)• Age-challenged population deterrent to growth - lower tax base and Age-challenged population deterrent to growth - lower tax base and

greater reliance on state and federal transfersgreater reliance on state and federal transfers

Reorganizing local public services may offer optionReorganizing local public services may offer option• Partnering, sharing, and regionalization of servicesPartnering, sharing, and regionalization of services• Political feasibility is the question for local communityPolitical feasibility is the question for local community

Unanswered Questions in Unanswered Questions in Improving Rural IncomesImproving Rural Incomes

What about counties that do not want to What about counties that do not want to change and grow – do not want to develop change and grow – do not want to develop non-farm sector?non-farm sector?

What about rural counties that lack What about rural counties that lack necessary human capital -entrepreneurs, necessary human capital -entrepreneurs, innovators, “shakers and movers”?innovators, “shakers and movers”?

What about counties that are spatially and What about counties that are spatially and capital-challenged – human, natural, capital-challenged – human, natural, physical, and social?physical, and social?

State Transfers to CountiesState Transfers to Counties

0 .2 1 9 - 0 .5 0 50 .5 0 5 - 0 .6 1 80 .6 1 8 - 0 .9 10 .9 1 - 2 .2 3 5

Local Government Salaries and Local Government Salaries and Wages per CapitaWages per Capita

0 .2 9 3 - 0 .7 4 30 .7 4 3 - 0 .8 9 50 .8 9 5 - 1 .0 4 51 .0 4 5 - 3 .8 0 8

Percent of Population Aged 65+Percent of Population Aged 65+

1 - 1 1 01 1 1 - 3 7 03 7 1 - 6 2 96 3 0 - 7 3 9

Number of Non-farm Proprietors Number of Non-farm Proprietors per Capitaper Capita

0 .0 1 1 9 3 9 - 0 . 0 7 2 9 1 40 .0 7 2 9 1 4 - 0 . 0 8 2 6 2 80 .0 8 2 6 2 8 - 0 . 0 9 1 6 3 60 .0 9 1 6 3 6 - 0 . 1 0 2 4 1 90 .1 0 2 4 1 9 - 0 . 1 8 8 3 8 6

County was Adjacent to a County was Adjacent to a Metro CountyMetro County

( (

#

# (

## (

#(

# #

#

(# ## #(

(

#

# 1 0 0 0 0 0 - 2 0 0 0 0 0

( 2 0 0 , 0 0 0 +

Percent of County Population Percent of County Population Commuting 30+ MinutesCommuting 30+ Minutes

< 2 0 %2 0 - 3 0 %3 0 - 4 0 %4 0 - 5 0 % +

Explanatory VariablesExplanatory Variables The empirical model ultimately used is a Cobb-The empirical model ultimately used is a Cobb-

Douglas type:Douglas type:

i,t 11, , , , ,

,

, , ,

,home+4 ,home +

LCRln ln ln ln ln ln 65 ln 2034

ln + ln ln

exp

ti t i t i t i t i t

t i t

i t i t i t

i i

TCIP PCI TPPC PPOP PPOP

TCI LCR

PCOL PPOPCOM NFPPC

COE AI

4 , , , ,

i, , , , , ,

1,...,7

+ i t i t i t i t

i t i t i t i t i t i kk

PTPC TSWPC STPC STBPC

PFINCF NMC UD ID UP sd

ModelModel

Take the ratio of this identity over two Take the ratio of this identity over two points in time and then take logs to get the points in time and then take logs to get the following growth relationshipfollowing growth relationship

1 1 1ln ln * lnt t t

t t t

TCI P PCI

TCI P PCI

Total county income growth from t to t+1 is a function of Total county income growth from t to t+1 is a function of population growth and per capita income growthpopulation growth and per capita income growth

Relationship Between Dependence on Farm Income in 1990 and Per-Capita Income Growth 1990 to 2001 for

Midwestern States

-100%

-50%

0%

50%

100%

150%

0% 10% 20% 30% 40% 50% 60% 70%

Percent of County Income from Farming

Inco

me

Gro

wth

199

0 to

200

1

Explanatory VariablesExplanatory Variables PPi,ti,t is the population of county i in year t; is the population of county i in year t;

PCIPCIi,ti,t is the average per capita county income; is the average per capita county income;

is growth in livestock cash receipts over the period is growth in livestock cash receipts over the period t to t+1 (LCRt to t+1 (LCRi,ti,t is the total livestock cash receipts from within is the total livestock cash receipts from within the county);the county);

TPPCTPPCi,ti,t is transfer payments per capita; is transfer payments per capita;

PPOP65PPOP65i,ti,t is the percent of the county population aged 65 is the percent of the county population aged 65 plus;plus;

PPOP2034PPOP2034 i,ti,t is the percent of the county population aged is the percent of the county population aged between 20 and 34;between 20 and 34;

PCOLPCOLi,ti,t is the percent of the county population aged 25 -- is the percent of the county population aged 25 -- with a college degree or higher;with a college degree or higher;

PPOPCOMPPOPCOMi,ti,t is the percent of the county population that is the percent of the county population that commutes 30 minutes or more to work; commutes 30 minutes or more to work;

NFPPCNFPPCi,ti,t is the number of non+farm proprietors per capita; is the number of non+farm proprietors per capita;

AIAIi,home+4i,home+4 is the combined amenity index for the home and 4 is the combined amenity index for the home and 4 neighboring counties;neighboring counties;

COECOEi, home+4i, home+4 is the number of COE swimming areas in the is the number of COE swimming areas in the home and neighboring counties; home and neighboring counties;

PTPCPTPCi,ti,t is property taxes per capita; is property taxes per capita;

TSWPCTSWPCi,ti,t is total government salaries and wages per capita; is total government salaries and wages per capita;

STPCSTPCi,ti,t is state transfer payments per capita; is state transfer payments per capita;

STBPCSTBPCi,ti,t is the total state income (corporate and personal) is the total state income (corporate and personal) tax burden per capita;tax burden per capita;

PFINCPFINCi,ti,t is the share of the counties income that came from is the share of the counties income that came from farming;farming;

NMCNMCi,ti,t is a dummy =1 if the county was located adjacent to a is a dummy =1 if the county was located adjacent to a metro county;metro county;

UDUDi,ti,t is a dummy variable =1 if the county had a population of is a dummy variable =1 if the county had a population of 50k plus in t;50k plus in t;

i,t 1

,

LCRln

i tLCR

Explanatory VariablesExplanatory Variables

IDIDi,ti,t is a dummy variable =1 if the county is a dummy variable =1 if the county has an interstate;has an interstate;

UPUPi,ti,t is a dummy variable if the county was is a dummy variable if the county was home to a significant University and was not home to a significant University and was not

in a major metropolitan center;in a major metropolitan center;

SdSdi,ki,k is a dummy variable indicating the is a dummy variable indicating the county is present in one of the k states; andcounty is present in one of the k states; and

εεii is a random error. is a random error.

Counties.shpNegative Growth0 to 20%20% to 40%40% to 60%60% to 100%

States.shp

Growth in Per-Capita County Incomes 1990 to 2001