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

Listed author(s):
  • Simeon Alder
  • David Lagakos
  • Lee Ohanian

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20538.

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Date of creation: Oct 2014
Handle: RePEc:nbr:nberwo:20538
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