Income Growth in the Rural Midwest: Where Is There a Problem? John Miranowski Co-Authors: Bruce Babcock, Dermot Hayes, and Daniel Monchuk

Introduction  Origins of Study  Why are many rural counties left behind?  What drives rural economic development in Midwestern counties?  Analysis to identify important policy or control variables for rural development in Midwest  “People-based” vs. “Place-based” vs. “Business-based” policies

Current Value Added Approach in Rural Midwest  Local, State and USDA groups focus on subsidizing investments in businesses, such as ethanol and bio- diesel  Some recent interest in water and land based recreation, including bike trails  Commodity groups are turning their focus to livestock and biofuels  Governor and State leaders are interested in biotech and crop transformation, as well as some interest in reducing taxes  ISU research and extension in farmers markets, specialty crops, and sustainable agriculture systems

The Problem  Isolated rural counties in the Midwest fail to attract investment capital due to lack of agglomeration economies and market access  Agriculturally dependant counties in the Midwest typically do not generate enough economic activity to retain the human capital they produce and may not provide attractive environment for investment

Approach  Take a broad, data-based approach to Midwest county income growth: 1) examine a range of variables 2) address spatial aspects associated with local and regional economic growth  Attempt to explain total county income growth for the period , based on initial conditions in 1990 Minnesota, Wisconsin, Illinois, Iowa, Missouri, Kansas, Nebraska, and South DakotaMinnesota, Wisconsin, Illinois, Iowa, Missouri, Kansas, Nebraska, and South Dakota

Measure of Success  Considered alternative measures local/county economic vitality  Settled on growth in Total County Income  Measure captures both population and per capita income growth  Measure ignores the investment in human capital of those who are educated and leave

Total County Income Growth

1990 County Population

1990 Dependence on County Income from Farming

Growth Livestock Cash Receipts

Recreation Amenity index (own and surrounding counties)

COE Swimming Area (own and surrounding counties)

Property Taxes per Capita

State Income Taxes per Capita

Summary and Policy Implications  Recreational amenities and bike trails have positive impacts on county income growth Amenities in surrounding counties also important – regional vs. local approach to amenity developmentAmenities in surrounding counties also important – regional vs. local approach to amenity development  Counties with reliance on farm income (and commodity program 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 (value adding on-farm) have experienced greater county income growth Subject to being accomplished in environmentally-sensitive mannerSubject to being accomplished in environmentally-sensitive manner

Summary and Policy Implications  Government efforts and approaches to achieve rural development not well directed  High taxes, state transfers to counties, and local employee payrolls deter growth  Dramatic tax cuts are not realistic option Taxes support education of those about to leave and community services for those unable to leave (aging population)Taxes support education of those about to leave and community services for those unable to leave (aging population) Age-challenged population deterrent to growth - lower tax base and greater reliance on state and federal transfersAge-challenged population deterrent to growth - lower tax base and greater reliance on state and federal transfers  Reorganizing 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 Improving Rural Incomes  What about counties that do not want to change and grow – do not want to develop non-farm sector?  What about rural counties that lack necessary human capital -entrepreneurs, innovators, “shakers and movers”?  What about counties that are spatially and capital-challenged – human, natural, physical, and social?

State Transfers to Counties

Local Government Salaries and Wages per Capita

Percent of Population Aged

Number of Non-farm Proprietors per Capita

County was Adjacent to a Metro County # ( 200,000+

Percent of County Population Commuting 30+ Minutes <20% 20-30% 30-40% 40-50%+

Explanatory Variables  The empirical model ultimately used is a Cobb- Douglas type:

Model  Take the ratio of this identity over two points in time and then take logs to get the following growth relationship Total county income growth from t to t+1 is a function of population growth and per capita income growth Total county income growth from t to t+1 is a function of population growth and per capita income growth

Explanatory Variables  P i,t is the population of county i in year t;  PCI i,t is the average per capita county income;  is growth in livestock cash receipts over the period t to t+1 (LCR i,t is the total livestock cash receipts from within the county);  TPPC i,t is transfer payments per capita;  PPOP65 i,t is the percent of the county population aged 65 plus;  PPOP2034 i,t is the percent of the county population aged between 20 and 34;  PCOL i,t is the percent of the county population aged with a college degree or higher;  PPOPCOM i,t is the percent of the county population that commutes 30 minutes or more to work;  NFPPC i,t is the number of non+farm proprietors per capita;  AI i,home+4 is the combined amenity index for the home and 4 neighboring counties;  COE i, home+4 is the number of COE swimming areas in the home and neighboring counties;  PTPC i,t is property taxes per capita;  TSWPC i,t is total government salaries and wages per capita;  STPC i,t is state transfer payments per capita;  STBPC i,t is the total state income (corporate and personal) tax burden per capita;  PFINC i,t is the share of the counties income that came from farming;  NMC i,t is a dummy =1 if the county was located adjacent to a metro county;  UD i,t is a dummy variable =1 if the county had a population of 50k plus in t;

Explanatory Variables  ID i,t is a dummy variable =1 if the county has an interstate;  UP i,t is a dummy variable if the county was home to a significant University and was not  in a major metropolitan center;  Sd i,k is a dummy variable indicating the county is present in one of the k states; and  ε i is a random error.