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

45 Pages Posted: 6 Oct 2014 Last revised: 13 Feb 2022

See all articles by Simeon Alder

Simeon Alder

University of Wisconsin - Madison - Department of Economics

David Lagakos

University of California, San Diego (UCSD) - Department of Economics; National Bureau of Economic Research (NBER)

Lee E. Ohanian

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 2014

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

Alder, Simeon and Lagakos, David and Ohanian, Lee E., Competitive Pressure and the Decline of the Rust Belt: A Macroeconomic Analysis (October 2014). NBER Working Paper No. w20538, Available at SSRN: https://ssrn.com/abstract=2505844

Simeon Alder (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

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David Lagakos

University of California, San Diego (UCSD) - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Lee E. Ohanian

University of California, Los Angeles (UCLA) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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