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Are Rural Costs of Living Lower? Evidence from a Big Mac Index Approach

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Listed:
  • Scott Loveridge
  • Dusan Paredes

Abstract

Rural leaders can point to low housing costs as a reason that their area should be competitive for business attraction. To what extent do rural housing costs offset transportation and other locational disadvantages in cost structures? The United States lacks information to systematically answer the question. We adapt a strategy employed by The Economist in exploring purchasing power parity: the Big Mac index. We gather information on Big Mac prices with a random sample of restaurants across the contiguous United States. We find that core metro counties exhibit slightly higher Big Mac prices than other counties, but that differences across the balance of the rural–urban continuum code are not significant, implying that costs in a metroadjacent county are not different than areas that are much more rural. We show that some groups of states exhibit lower prices, especially in the southeast. Furthermore, we test for the presence of spatial monopoly and find that distance to other MacDonald’s restaurants has some influence on price. Stores at a greater distance from their competitors tend to charge more, ceteris paribus. We also show our results are consistent with other localized estimates of living costs. Our general findings could help rural decision makers determine whether their area truly holds cost advantages for firms looking to relocate.

Suggested Citation

  • Scott Loveridge & Dusan Paredes, 2018. "Are Rural Costs of Living Lower? Evidence from a Big Mac Index Approach," International Regional Science Review, , vol. 41(3), pages 364-382, May.
  • Handle: RePEc:sae:inrsre:v:41:y:2018:i:3:p:364-382
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    Citations

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    Cited by:

    1. Orkideh Gharehgozli & Vidya Atal, 2020. "‘Big Mac Affordability’ and real-income inequality across countries," Applied Economics Letters, Taylor & Francis Journals, vol. 27(16), pages 1352-1356, September.
    2. Juan Soto & Milena Vargas & Julio A. Berdegué, 2018. "How Large Are the Contributions of Cities to the Development of Rural Communities? A Market Access Approach for a Quarter Century of Evidence from Chile," Documentos de Trabajo LACEA 017060, The Latin American and Caribbean Economic Association - LACEA.
    3. Gharehgozli, Orkideh & Atal, Vidya, 2020. "Revisiting the gender wage gap in the United States," Economic Analysis and Policy, Elsevier, vol. 66(C), pages 207-216.
    4. Orkideh Gharehgozli & Vidya Atal, 2019. ""Big Mac Real" Income Inequality : A Multinational Study," LIS Working papers 775, LIS Cross-National Data Center in Luxembourg.

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