NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Simeon Alder, David Lagakos, Lee Ohanian

NBER Working Paper No. 20538
Issued in October 2014
NBER Program(s):   EFG

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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Document Object Identifier (DOI): 10.3386/w20538

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