A New Micro View of the U.S. Rural Economy

By Henry, Mark; Drabenstott, Mark | Economic Review - Federal Reserve Bank of Kansas City, Second Quarter 1996 | Go to article overview

A New Micro View of the U.S. Rural Economy


Henry, Mark, Drabenstott, Mark, Economic Review - Federal Reserve Bank of Kansas City


Rural areas are thought to have two salient features, remoteness and small scale, that tend to inhibit economic growth. These features have explained at least partially why economic growth in the nation's rural areas has generally trailed that in metropolitan areas. However, the rural economic turnaround in the 1990s, while not uniform, suggests that some rural communities may have found ways of overcoming their remoteness and small scale. Put simply, some rural areas appear to have an advantage over others in terms of economic growth rates.

How have rural economies been performing and why have some been able to perform better than others? Accurate answers to these questions are hard to come by. Typically, the performance of the nation's rural counties is compared with the performance of metropolitan counties, and then a summary comparison is drawn. But such an aggregate approach has drawbacks. One conceptual weakness is that rural places usually compete for economic activity with the metropolitan area at the center of their economic sphere, not with all metropolitan areas. In short, the usual "macro" view of the rural economy may overlook critical "micro" information and linkages.

This article uses a new micro-region approach to measure and explain rural economic performance. In the first section, rural economic performance is measured by assessing rural performance within a framework of multicounty economic regions. Recently defined by the Commerce Department based on commuting and economic patterns, each of these micro-regions has a metropolitan center and a surrounding area. Analysis of the economic regions reveals that rural counties in a surprising number of micro-regions throughout the nation are adding jobs at a faster rate than their neighboring metropolitan area. Further analysis shows that many of the jobs pay low wages. In the second section, factors are considered that appear to explain why some rural places have been enjoying solid job growth. Analysis suggests that a critical mass of similar firms has been a major factor in rapid job growth, although a spillover of economic activity from urban areas has also helped many rural areas. The concluding section considers the implications of these micro-level findings for public and private decisionmakers.

A MICRO-REGION FRAMEWORK

Traditionally, economists have assessed the performance of the rural economy by measuring economic growth in all of the nation's nonmetropolitan, or rural, counties and then comparing that growth with all of the nation's metropolitan, or urban, counties. Put another way, this approach assumes an economic contest between the nation's 2,376 rural counties on one side and its 692 metropolitan counties on the other. Comparing employment growth rates for these two groups of counties, therefore, provides one measure of how well the rural economy has been doing. Chart 1 demonstrates this approach, suggesting that the rural economy in the 1990s has rebounded somewhat from weakness in the 1980s. In fact, by this aggregate approach rural areas pulled ahead of metropolitan areas from 1990 through 1993. This is not altogether surprising given that the 1990-91 recession hit metropolitan areas much harder than rural areas.

The aggregate approach, however, does not provide a complete picture of rural economic performance. By relying on an average for all rural counties, the approach masks the underlying pattern of rural strength and weakness. More fundamentally, the aggregate approach ignores the geography of economic activity in rural places. In other words, economic growth is a local phenomenon, and thus most rural places see themselves as part of an economic sphere defined by the metropolitan area at the center of their sphere. One question facing rural communities, then, is how well are they able to compete for economic activity with the nearby urban center?

To answer that question it is useful to compare rural and metropolitan economic performance within the same local economic region. …

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