University of Michigan Gateway Ford School

Transformation of America’s Metropolitan Area Economies: Lessons from Four Decades

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February 2014

George A. Fulton, Donald R. Grimes, Yuanlei Zhu Institute for Research on Labor, Employment, and the Economy and Research Seminar in Quantitative Economics

Abstract

With a unique approach and expanded data measures, this study attempts to contribute to the research on what leads metro economies in the United States to function the way they do, what makes some of the economies more successful than others, and what policy handles, if any, can improve their profiles. The primary tool for analysis is regression, and two measures, income and employment, are used to represent economic success. Two dimensions of analysis are considered: time and space (geography). For time, we investigate the hypothesis that behavioral relationships can vary in a meaningful way depending on the time period selected for analysis, while other relationships remain robust over time. For space, we compare results for metro areas in the “rust belt” region of the country with those for metro areas collectively in the nation. To address the constraints, or “tyranny,” of best practices, we carry out an analysis of residuals to gain insight into which metro areas least conformed to the fit of the general model, and why. The results suggest that findings can be quite sensitive to the time period selected, but also that there are structural and policy-related drivers that are more robust to different time periods and geographies. Among the strongest indicators of the well-being of a metro area are the initial conditions in the metro area, the industry structure, the innovative environment, crime, and educational attainment. Metro areas fit the income model reasonably well. Some areas did not conform as well to the fit of the employment model; those areas tended to be rapidly growing economies located in the South and West regions of the country.

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Keywords: Economy and Economic Development

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