The relative poverty of American Indian reservations : why does reservation poverty persist despite rich neighbors?

Abstract

American Indian reservations have per capita incomes $9,000 lower than adjacent counties. This paper seeks to explain why using an approach akin to the analysis of country-level data. I estimate differences in levels of income and income growth for a decade where Indian economies were transformed greatly by casino gambling - the 1990s. I test several recent innovations in the theory of economic growth within the context of American Indian economies and assess how economic performance depends on veto players, human capital investment, and windfall wealth. I find that measures of rule of law, rent seeking, and human capital are the most economically significant predictors of the per capita income gap. In addition, the size of Indian casinos is strongly correlated with convergence and economic growth, suggesting that tribal investment in Indian casinos plays an important role in reservation economies. From the work done here, promoting economic growth through enhancing a stable investment climate appears to be the most successful development strategy. Moreover, this study contributes to the broader literature on economic growth by providing new insight into the way institutional quality affects the speed of, or potentially lack of, convergence.