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Competitive Pressure and the Decline of the Rust Belt: A Macroeconomic Analysis

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  • Simeon Alder
  • David Lagakos
  • Lee Ohanian

Abstract

No region of the United States fared worse over the postwar period than the "Rust Belt," the heavy manufacturing region bordering the Great Lakes. This paper hypothesizes that the Rust Belt declined in large part due to a lack of competitive pressure in its labor and output markets. We formalize this thesis in a two-region dynamic general equilibrium model, in which productivity growth and regional employment shares are determined by the extent of competition. Quantitatively, the model accounts for much of the large secular decline in the Rust Belt's employment share before the 1980s, and the relative stabilization of the Rust Belt since then, as competitive pressure increased.

Suggested Citation

  • Simeon Alder & David Lagakos & Lee Ohanian, 2014. "Competitive Pressure and the Decline of the Rust Belt: A Macroeconomic Analysis," NBER Working Papers 20538, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20538
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    1. Competitive Pressure and the Decline of the Rust Belt: A Macroeconomic Analysis
      by Christian Zimmermann in NEP-DGE blog on 2014-12-09 21:26:56

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    4. Lee E. Ohanian, 2014. "Competition and the Decline of the Rust Belt," Economic Policy Paper 14-6, Federal Reserve Bank of Minneapolis.
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    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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