UHERO Publications
Reassessing regional club convergence with income adjusted for subnational price variation
Regional club convergence has theoretical foundations in neoclassical growth, endogenous growth, and spatial equilibrium. Still, only the latter explicitly accounts for prices, implying convergence in well-being or incomes after adjusting for the local cost of living. Subnational price variation persists due to economic and political geography yet has not previously been incorporated into club convergence analysis. In light of this foundation, we re-examine regional income convergence by adjusting for subnational price variation using Regional Price Parities (RPP) for 384 MSAs, 2917 counties, and 51 states (including DC) provided by the Bureau of Economic Analysis for 2008–2023. We extend the period of analysis by using a CPI-based RPP index for 25 cities (1969–2017), which yields consistent results, despite the limited sample size. We find that adjusting incomes for subnational price variation generally reduces the number of divergent regions and centralizes the distribution of regions between clubs, consistent with spatial equilibrium. While price differences partly determine club membership in unadjusted data, their influence generally diminishes after adjustment, indicating that standard analyses partly capture price variation rather than true reflections of convergence in well-being. Our study underscores the importance of adjusting for subnational price variation in convergence research and advocates for broader RPP coverage over time and space.