Economy of Indiana

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Economy of Indiana
2002 IN Proof.png
Output and standard of living
Gross state product $275,676 million[1]
Income per capita $34,943[2]
Labor force
Labor force size 3,144,700 [3]
Unemployment rate 6.9%[4]
Inequality and poverty
Gini index 0.434[5]
Poverty rate 13.1%[6]
Public sector
State budget expenditures $13,036 million[7]
Tax revenue $13,796.427 million[8]

The total gross state product in 2005 was US$214 billion in 2000 chained dollars.[9] Indiana's per capita income, as of 2005, was US$31,150.[10] A high percentage of Indiana's income is from manufacturing.[11] The Calumet region of northwest Indiana is the largest steel producing area in the U.S. Steelmaking itself requires generating very large amounts of electric power. Indiana's other manufactures include pharmaceuticals and medical devices, automobiles, electrical equipment, transportation equipment, chemical products, rubber, petroleum and coal products, and factory machinery.


Indiana's earliest economy revolved around trade with the Native American tribes in the northern and central parts of the state, which were connected by rivers to the Great Lakes, and ultimately the Atlantic. The state government established a trading monopoly with the tribes who became the primary purchasers of Indiana settler's goods. Although the basis was established in the Northwest Ordinance[12] and well known, economic growth was slow to begin in the state, primarily due to the inability to ship goods to market affordably. After the Mississippi River was opened to American traffic following the Louisiana Purchase, agricultural grew rapidly in the state, but was still hampered by the lack of internal transportation in the state.[13]

The Indiana General Assembly attempted to remedy the transportation system in the late 1810s, but was thwarted by the Panic of 1819 which caused the state's only two banks to collapse. A second attempt was launched in the early 1830s leading to the passage of the Mammoth Internal Improvement Act. This state-funded development of canals, railroads and roads statewide resulted in a large rise in land and produce values, but it too was thwarted by the Panic of 1837; although this spending bankrupted the state, the foundation it provided allowed Indiana to grow into one of the leading farming states by the 1850s.

The 1860s and the American Civil War led to the rapid completion of the state's railroad system and the growth of small industry. Building railroad cars and glass manufacturing became the state early leading industries, established primarily in the central parts of the state. Southern Indiana, however was adversely affected by the war and never regained it economic dominance in the state. Prior to the war, the largest cites were along the Ohio River and had a thriving trade with the south and large ship building centers that languished in the war. In most of the state, the war led to a rise in the value of farm produce and significantly raised the state's standards of living.[14]

The post-Civil War period was a difficult time for industrial workers in Indiana. Like workers elsewhere in the country, Indiana miners and factory workers were often underpaid. They worked under dangerous conditions, and they went jobless during economic recessions, such as those of 1873 and 1893. Many workers joined the farmers in supporting the Greenback Party and similar movements. Some workers joined labor organizations such as the Knights of Labor, the American Federation of Labor, the United Mine Workers of America, and the American Railway Union, which was led by Eugene V. Debs of Terre Haute.

Beginning about 1890, Indiana was swept by a second wave of industrial growth that transformed it into a predominantly urban, industrial state by 1920. Growth began with the Indiana Gas Boom in mid-1880s leading to rapid development in the east-central parts of the state.[15] The trend continued during the period of expansion fed by the cheap access to fuel and the focus of growth moved primarily to heavy industry, especially in the Calumet region of northwestern Indiana. Before 1889, when a large oil refinery was built at Whiting, the Calumet was a sparsely populated strip of swamps and sand dunes. In 1905 the Calumet received its major push to development when the United States Steel Corporation decided to locate its Midwestern mills there. The next year U.S. Steel laid out the city of Gary, naming it after its chairman of the board, Elbert H. Gary. By 1920 the Calumet was one of the leading industrial centers in North America.

Indiana farmers prospered in the early years of the 20th century and during World War I (1914–1918). After the war, however, inflated costs and declining prices contributed to a farm recession that continued through the 1920s. Industrial workers fared better, although there were bitter strikes in Indiana’s coal and steel industries and on the railroads in the years just after the war. The 1930s, a time of worldwide economic depression, were difficult for most Hoosiers. There was widespread unemployment, particularly in the southern part of the state more than half the residents were without jobs during the worst years.[16] Federal and state aid programs were undertaken. In January 1937, natural disaster added to Indiana’s difficulties when the Ohio River flooded much of southern Indiana. Hundreds of Indianans died in the flood, and property damage was estimated at hundreds of millions of dollars. Indiana’s Gross Domestic Product, like that of the nation, underwent a resurgence during World War II (1939–1945). A great range of goods was produced in the state’s factories, including tanks, airplanes, guns, and communications equipment.

Continued prosperity marked the postwar era. Manufacturing remained the leading economic activity, and farming continued to become increasingly mechanized. Although farm production increased, the number of farm workers declined. The total number of farms also decreased, often because small farms were merged to form larger, more efficient units. Indiana’s economic growth slowed during the national economic recessions of the 1980s, mostly because of a deep slump in production by heavy industry. By 1983, the state’s unemployment rate was about 12 percent, one of the highest in the nation. In the early 1980s, many farmers went deeply into debt and hundreds of farms went out of business. The state’s economy recovered in the late 1980s as some manufacturing industries made comebacks and as community, social, and personal service industries grew rapidly, and economic diversification occurred.[17]

During the early years of the 1990s, Indiana’s economy continued to improve as service activities grew in the larger metropolitan areas and the state’s pharmaceutical and agricultural chemical industries underwent major expansions. Already Indiana had replaced Pennsylvania as the nation’s leading steel producer, and the port commission’s deepwater port on Lake Michigan, as well as its two river ports in southern Indiana, developed substantial international and national traffic. Indiana’s generally strong economy generated record low unemployment figures and a large budget surplus, considerably in excess of $1 billion. The state’s income was augmented by revenue from newly instituted venues for gambling (at racetracks and riverboat casinos) and a state lottery begun in the late 1980s.[18]

Economic Stimulus plan[edit]

Indiana got its share in the economic stimulus plan suggested by president Barack Obama, receiving about $4.3 billion:[19] divided:

  • $1.3 billion for education
  • $1.4 billion for Medicaid
  • $658 million for state and local transportation and/or infrastructure projects
  • $100 million for housing
  • $100 million for water quality
  • $400 million for nutrition
  • $70 million for energy
  • $70 million for employment services
  • $40 million for child care
  • $40 million for justice-related projects

Governor Daniels was adamant about not using federal stimulus money to prop up the budget, warning that spending the money on regular expenses instead of one-time projects will leave the budget in worse shape when the stimulus ends in two years. Daniels had signaled support for budgeters' proposal to pump some stimulus money into schools to give them a needed boost, while holding some federal cash in reserve to create a fiscal glide path once the stimulus goes away.[20]

Fiscal Policy[edit]

Indiana has a flat state income tax rate of 3.4%. Many Indiana counties also collect income tax. The state sales tax rate is 7%. Property taxes are imposed on both real and personal property in Indiana and are administered by the Department of Local Government Finance. Property is subject to taxation by a variety of taxing units (schools, counties, townships, cities and towns, libraries), making the total tax rate the sum of the tax rates imposed by all taxing units in which a property is located. However, a "circuit breaker" law enacted on March 19, 2008 limits property taxes to one percent of assessed value for homeowners, two percent for rental properties and farmland and three percent for businesses.

Indiana’s sales tax has, for most of the last 30 years, generated the largest share of tax receipts—49 percent FY 2010. No single tax has ever comprised 50 percent of the state’s total revenue. Indiana’s income tax became more important in producing revenue during the 1980s and 1990s. Its share of the revenue total has grown from about 25 percent to more than 40 percent in the late 1990s and early 2000s.[21]

In Fiscal year 2011 Indiana reported one of the largest surpluses among U.S states, with an extra $1.2 billion in its accounts. Gov. Mitch Daniels, a Republican, on Friday authorized bonus payments of up to $1,000 for state employees. An employee who “meets expectations” will get $500, those who “exceed expectations” will receive $750 and “outstanding workers” will see an extra $1,000 in their August paychecks. [22] These payments may be misleading, as most of Indiana's State Employees have been on a wage freeze since the Great Recession; effectively allowing inflation to decrease their amount of real compensation, and leave the increasing costs of its health insurance to their expense. In contrast, Indiana's Governor during the most recent part of this period; Mike Pence, draws the largest salary of any governor in Indiana's history. [23]

Local budget[edit]

The concept of a funded budget is one of the keys to local government budgeting in Indiana. Funded budget is defined as the available resources greater than the necessary appropriations at the end of the budget cycle. It involves two related budgeting principles:

  • Each Township Board annually adopts a single integrated funded budget, which reflects the financial program of every department, both individually and collectively.
  • Indiana law requires not only a funded budget, but also one which balances each component fund or account.



Sources of energy (2009) See below Navbox for individual facilities.
Fuel Capacity Percent of Total Consumed Percent of Total Production Number of Plants/Units
Coal 22,190.5 MW 63% 88.5% 28 Plants
Natural Gas 2,100 MW 29% 10.5% 15 Facilities
*Often used in Peaking Stations
(Currently The fastest growing form of energy in Indiana)
1,036 MW
1,836.5 MW
when all current wind farms are complete
 ?  ? 4 Farms
appx 1,000–1,100 Towers total
Coal Gasification 600 MW  ?  ? 1 Facility under Construction
Petroleum 575 MW 7.5% 1.5% 10 Units
Hydroelectric 64 MW 0.0450% 0.0100% 1 Plant
Biomass 28 MW 0.0150% 0.0020% 1 Facility
Wood & Waste 18 MW 0.0013% 0.0015% 3 Units
Geothermal and/or Solar 0 MW 0.0% 0.0 No Facilities at this time
Nuclear 0 MW 0.0% 0.0 12 facilities just completed
Total 22,797.5 MW
* only includes top number of wind
100% 100% 46 Generating Facilities

Oil, natural gas, and coal[edit]

Most of the electricity generated in Indiana in the early 21st century came from steam-driven power plants fueled by black coal. Although western Indiana has an abundance of coal, its high sulfur content has encouraged some utilities to bring in coal from Wyoming. Most of the plants are operated by privately owned utilities. In 1984 the construction of two nuclear power plants was abandoned because of escalating costs. Most steam driven power plants are located along the Wabash and Ohio Rivers.



Indiana has six hydroelectric dams. The Norway and Oakdale Dams near Monticello provide electrical power, recreation, and other benefits to local citizens. The Norway Dam created Lake Shafer and the Oakdale Dam created Lake Freeman. The Markland Dam, on the Ohio River, near Vevay, Indiana also produces electricity. The city of Wabash was the first electrically lighted city in the country.


Indiana is becoming a leading state in the production of biofuels, such as ethanol and biodiesel. Indiana now has 12 ethanol and 4 biodiesel plants located in the state.[24] Reynolds, located north of Lafayette is now known as BioTown, USA. The town is experimenting with using biofuels and organic fuels, such as those made with manure, to power the town.[25]


Solar power is being investigated. As of early 2010, Indiana has no large-scale solar power facilities.

Further information: Wind power in Indiana

Commercial wind power in Indiana began in 2008 when the Benton County Wind Farm came online. New estimates of wind resources in 2006 raised the potential wind power capacity for Indiana from 30 MW at 50 m turbine hub height to 40,000 MW at 70 m, which could double at 100 m, the height of newer turbines.[26] At the end of June, 2008, Indiana had installed 130 MW of wind turbines and had under construction another 400 MW.[27] As of 31 December 2009, Indiana had a total of 1035.95 MW of wind power nameplate capacity installed,[28] with more under construction or in planning.[29]


As of March 2008 Indiana has no geothermal electrical power generation facility. The Indiana Geological Survey was conducting a study to catalogue all potentially exploitable sources of geothermal heat in the state.[30]

In 2010, the Indiana Heating and Air-Conditioning Incentive Program (IHIP) provides rebates of up to $1000 for the purchase and installation of Energy Star-rated geothermal heat pumps.[31]

One of the largest geothermal heat pump systems in the United States is a GeoExchange pond coupled loop system by Geothermal Design Associates at the St. Joseph Medical Center in Fort Wayne.[32]


Agriculture is an important industry in Indiana which is part of the Corn Belt. Some farm products produced are: corn, wheat, oats, hay, and soybeans. Livestock production includes: cattle, hogs, poultry, and sheep. Corn is the leading crop grown in Indiana. In 1997, two-fifths of all cropland was planted in corn. One-half of all crop income usually comes from the sale of corn, but even this underestimates the true importance of corn, since much of it is not sold, but is instead fed to livestock. Much of Indiana’s corn crop is fed to hogs on the farms where both are raised. The significance of soybeans has increased in recent years, approaching corn in terms of value and amount produced. Wheat and vegetables, especially tomatoes for processing, are also important crops. In addition, Indiana is noted as one of the few producers in the United States of spearmint and peppermint, grown mostly in the northwest. In 1997 Indiana ranked ninth in sales of all crops, but fourth in sales of soybeans and fifth in sales of corn.

Pharmaceuticals & Medical Devices[edit]

Indiana is home to the international headquarters of pharmaceutical manufacturer Eli Lilly in Indianapolis, the state's largest corporation. Evansville is home to Mead Johnson Nutritionals, a subsidiary of Bristol-Myers Squibb, another large producer. Elkhart has also had a strong economic base of pharmaceuticals, though it has decreased over with the closure of Whitehall Laboratories in the 1990s and of the large Bayer complex, announced in late 2005.[33] Overall, Indiana ranks fifth among all U.S. states in total sales and shipments of pharmaceutical products and second highest in the number of biopharmaceutical related jobs.[34] Warsaw is dubbed the "Orthopedic Capital of the World"; the Warsaw region is home to nearly one-third of the $38 billion global orthopaedic industry [1] including Zimmer, Biomet and DePuy. Other medical device companies include Roche Diagnostics in Indianapolis, and Cook in Bloomington.


In mining, Indiana is probably best known for its decorative limestone from the southern, hilly portion of the state, especially from Lawrence County. One of the many public buildings faced with this stone is The Pentagon, and after the September 11, 2001 attacks, a special effort was made by the mining industry of Indiana to replace those damaged walls with as nearly identical type and cut of material as the original facing.[35] There are also large coal mines in the southern portion of the state. Like most Great Lakes states, Indiana has small to medium operating petroleum fields; the principal location of these today is in Southwestern Indiana, though operational oil derricks can be seen on the outskirts of Terre Haute.

See also[edit]


  1. ^
  2. ^
  3. ^
  4. ^
  5. ^
  6. ^
  7. ^
  8. ^
  9. ^ Bureau of Economic Analysis: Gross State Product
  10. ^ Bureau of Economic Analysis: Annual State Personal Income
  11. ^ "Indiana Economy at a Glance". U.S. Bureau of Labor Statistics. Retrieved 2007-01-11. 
  12. ^ Northwest OrdinanceArt 4: "The navigable waters leading into the Mississippi and St. Lawrence, and the carrying places between the same, shall be common highways and forever free, as well to the inhabitants of the said territory as to the citizens of the United States, and those of any other States that may be admitted into the confederacy, without any tax, impost, or duty therefor."
  13. ^ Gray, p. 3–4
  14. ^ Gray, p. 202
  15. ^ Gray, p. 187–188
  16. ^ "Indiana History Chapter Nine". Indiana Center for History. Archived from the original on 2008-04-11. Retrieved 2008-05-17. 
  17. ^ Agriculture in Crisis: The U.S. failed farms
  18. ^ Indiana in the 90's: From recession to ultra-success
  19. ^ Council of State Governments
  20. ^ Indy's News Center
  21. ^ Indiana Fiscal Policy Institute, FY 2010 closeout report
  22. ^
  23. ^
  24. ^ Biofuels Indiana
  25. ^ About BioTown
  26. ^ Indiana's Renewable Energy Resources Retrieved 20 August 2008
  27. ^ U.S. Wind Energy Projects - Indiana Retrieved 20 August 2008
  28. ^ "U.S. Wind Energy Projects - Indiana". American Wind Energy Association. 2009-12-31. Retrieved 2010-03-12. 
  29. ^ "Indiana Office of Energy Development - Wind Power". - Official Website of the State of Indiana. Retrieved 2010-03-23. 
  30. ^ "IGS to play key role in search for renewable geothermal energy". Indiana Geological Survey. Retrieved 2010-03-23. 
  31. ^ Coggeshall, Wade (2010-02-03). "State offers heating, cooling system rebates". Indiana Economic Digest. Retrieved 2010-03-23. 
  32. ^ "Du Pont Medical Center: Fort Wayne, Indiana, from Geothermal Heat Pump Consortium - Business White Papers, Webcasts and Case Studies". BNET. Retrieved 2010-03-23. 
  33. ^ WNDU-TV: News Story: Bayer is leaving Elkhart - November 16, 2005
  34. ^ "Economy & Demographics". Terre Haute Economic Development Co. Retrieved 2007-01-30. 
  35. ^ Pentagon Renovation Program


External links[edit]