VOX  CEPR Policy Portal

Economic historians tend to explain US geographical development gaps in terms of industrialisation. But by the end of the 20th century, the richest counties had become specialised in services, rather than in manufacturing. This column evaluates how the service economy triggered this evident contrast between the urban and rural US. Market size causes localisation of non-agricultural activity, with the effect being stronger for services, especially knowledge services. Local policymakers can thus foster growth by attracting high-skilled workers to a region, with the multiplier effect eventually increasing the local market.