The Spatial Structure of Economic Exchange and Rural Prosperity in the United States

There is a nascent discussion among policymakers and researchers that rural areas may be disadvantaged by their location within the supply-chain as providers of raw and minimally processed inputs to centers of production located elsewhere. This paper makes several important contributions to this emerging policy discussion. First, we formalize a new concept of intermediate circularity that characterizes the production and trade of intermediates, i.e., goods and services that are transformed and combined to produce other goods and services. Second, we use this model to derive a collection of measures that quantify the shape of economic activity. Third, we calculate feasible versions of these measures by applying the input-output framework and we compare their distribution across metro and non-metro counties of the United States. Finally, we estimate the relationship between these measures of intermediate circularity and indicators of economic performance. We find that the distributions of intermediate circularity indicators differ across metro and non-metro counties, as do their correlations with economic growth. Intermediate inputs tend to account for a larger share of output in non-metro counties and are more intensively exported. These attributes are associated with lower growth in both metro and non-metro counties. On the other hand, while using intermediate inputs is associated with growth in non-metro counties, the opposite is true in metro counties. Implications for policymakers who might consider incentivizing the spatial reorganization of economic activity with the aim of increasing rural prosperity, reducing urban-rural inequality, or improving the resilience of rural economies are discussed.