The state of New Hampshire is named as the most livable state in the country for the fifth year in a row in 2008 by CQ Press. This index is computed based on numerous variables including crime rates, health, education, per capita income, cost of living, and low taxes among others. State politicians cite the same factors in boasting the state as the most business friendly state in the country in attempts to attract business establishments to the state. New Hampshire firms are hypothesized to perform better than those in other states due to all the business friendly factors that the state has to offer.

In this paper, we investigate this New Hampshire advantage hypothesis, using industry-level output per worker as a measure of economic performance. We attempt to explain why New Hampshire seems to have comparative advantages in certain industries but not others in a regression analysis.

Data/Methods

We investigate the New Hampshire advantage in various industries using state-level output per worker data compiled by the Bureau of Economic Analysis. In a regression analysis to see what makes the state more competitive in certain industries than in others, we employ the following empirical model:

_{Y/Ls,i = α + βXs + εs,i , (1)}

where Y/L denote the output per worker, X is a collection of independent variables, s is state, i is industry, and ε is the error term. The X variables include the education level of the labor force, social infrastructure, capital stock per worker. We assume that independent variables are exogenously determined (EX' ε=0) since industry-level output per worker may not influence the state-wide factors such as education, crime rate, tax rate, and so on. The analysis includes 50 states plus District of Columbia.

Percent of People 25 Years and Over Who Have Completed a Bachelor's Degree is used as a proxy for the education level of state labor force and collected from U.S. Census Bureau, 2003 American Community Survey. Capital stock data come from the BEA. Crime data is downloaded from Bureau of Justice Statistics (2008). Data on taxes come from U.S. Census Bureau (released December 22, 2004).

Results/Expected Results

Capital stock:  (+) Increasing effect on output per worker in all industries

Education level of labor force:  (+) Increasing effect on output per worker in services

Tax burden:  (-) Decreasing (New Hampshire Pledge) effect on output per worker in all industries

Crime:  (-) Decreasing effect on output per worker in all industries

Discussion

The industry-level analysis reveals that New Hampshire does exhibit superior economic performance in some industries, mainly in the services sector primarily due to its highly educated labor force.