Assessing state business climate indexes

Indexes that rank state business climates figure prominently in debates about economic policy. But empirical evidence is rarely examined on which index factors actually correlate with economic growth. A statistical analysis suggests that state business climate indexes that focus on taxes and business costs are more closely associated with growth than indexes that measure productivity and quality of life. However, these business climate elements are less important for growth than nonpolicy factors, such as climate and population density.