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

Author

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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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    Cited by:

    1. Thorsten Drautzburg & Jesús Fernández-Villaverde & Pablo Guerrón-Quintana, 2017. "Bargaining Shocks and Aggregate Fluctuations," NBER Working Papers 23647, National Bureau of Economic Research, Inc.
    2. Kondo, Illenin O., 2018. "Trade-induced displacements and local labor market adjustments in the U.S," Journal of International Economics, Elsevier, vol. 114(C), pages 180-202.
    3. Herkenhoff, Kyle F. & Ohanian, Lee E. & Prescott, Edward C., 2018. "Tarnishing the golden and empire states: Land-use restrictions and the U.S. economic slowdown," Journal of Monetary Economics, Elsevier, vol. 93(C), pages 89-109.
    4. Lee E. Ohanian, 2014. "Competition and the Decline of the Rust Belt," Economic Policy Paper 14-6, Federal Reserve Bank of Minneapolis.
    5. Moser, Christian, 2016. "How Could Wage Inequality Within and Across Enterprises be Reduced?," MPRA Paper 95381, University Library of Munich, Germany.
    6. Aney, Madhav S. & Ghatak, Maitreesh & Morelli, Massimo, 2016. "Credit market frictions and political failure," Journal of Monetary Economics, Elsevier, vol. 81(C), pages 48-64.
    7. Thorsten Drautzburg & Jesús Fernández-Villaverde & Pablo Guerron-Quintana, 2017. "Political Distribution Risk and Aggregate Fluctuations," Working Papers 17-25, Federal Reserve Bank of Philadelphia.
    8. Bridgman, Benjamin, 2018. "Is Labor'S Loss Capital'S Gain? Gross Versus Net Labor Shares," Macroeconomic Dynamics, Cambridge University Press, vol. 22(8), pages 2070-2087, December.

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    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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