Which U.S. States Suffered a Greater Great Depression and Why?

Dong Cheng, Mario Crucini and Hanjo Terry. Kim

No 35028, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Aggregate real U.S. GDP fell by roughly 26 percent between 1929 and 1932, yet the severity of the Great Depression varied dramatically across states: CPI-deflated income per capita declined by 15 percent in Maryland but by 48 percent in South Dakota. To analyze this heterogeneity, we digitize Slaughter’s (1937) panel of state-by-sector production income for all 48 U.S. states and construct a novel set of sector- and state-specific deflators, allowing us to separate movements in physical quantities produced from the large relative price changes that occurred during the Great Depression. We then discipline a three-sector, 48-region dynamic spatial stochastic general equilibrium model and recover sequences of sector-state productivity shocks that exactly reproduce the observed sector-state quantity paths. The choice of deflators proves central, as correct deflation shifts the aggregate contraction away from agriculture and toward manufacturing while preserving idiosyncratic income variation across agricultural-dependent states. We further show that narratives based on common or even sector-specific shocks are inconsistent with the observed evolutions of state-level quantities and relative prices. Explaining the geography of the Great Depression therefore requires a high-dimensional sector-state shock structure.

JEL-codes: E32 F44 N12 R13 (search for similar items in EconPapers)
Date: 2026-04
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