Why some states do better than others

Alex Taborrok from Marginal Revolution posted yesterday about current trends in urbanization (a topic very near and dear to my heart) and was surprised by the strong correlation between GDP and urbanization rates as shown below (sorry for the bad formatting - had to make it big enough):

Kevin Drum from Mother Jones elaborated on some of this and Ryan Avents question: Why do some states have such large differences in GDP per hour but similar urbanization rates? (See graph below)

Drum pulled a conclusion from the original Credit Suisse report and wrote the following:

States that promote social mobility, discourage excessive income inequality, and are willing to invest in broad-based infrastructure, do well. Those that don't, don't.

But that's a pretty general cross-comparison to make. For many developing countries, urbanization has only been accelerating in the last 10 years, as compared to more developed countries that have been on a steady state of urbanization for decades. Such huge influxes of people have left many cities unable to support their populations, and therefore unable to tap into larger GDPs.

So it's hard to draw conclusions between U.S. states and countries when they have such different urbanization patterns. Time matters.

As to an answer why some states have higher GDP than others - it's a much more difficult question to answer. I think there we'll see many southern states continue to see their GDP rise as a result of population growth, but it's hard to say how effective their developing urban institutions will be.