Competitive Pressure and the Decline of the Rust Belt: A Macroeconomic Analysis
45 Pages Posted: 6 Oct 2014 Last revised: 13 Feb 2022
Date Written: October 2014
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: Suggested Citation