“The Economies of the Great Lakes States” by Ahking Francis
University of Connecticut
The increasingly globalized world has generated considerable interest in the synchronization of business cycle across nations. There is also increasing interest in business cycles at the intranational levels, such as at the regional or the state levels. Research on intranational business cycles can serve as a useful benchmark for understanding international business cycles. Moreover, Hess and Shin (1997) also argued that with an increasingly integrated world economy, international business cycles are increasingly looking more like intranational business cycles. There are few studies at the intranational levels using the classical business cycle approach of Burns and Mitchell (1946). We study the business cycles of the Great Lakes states using the classical business cycle approach. We know of no other study that has provided such an analysis. The Great Lakes region is interesting because it developed earlier than other U.S. regions because of the relatively inexpensive transportation provided by the Great Lakes and their waterways. It became the industrial heartland of the U.S. and later came to be known as the rust belt as the U.S. economy shifts from manufacturing to more service oriented industries. The Great Lakes region also suffered relatively more than other regions in the U.S. during the Great Recession of 2007 – 2009.
We use the Bureau of Economic Analysis’s (BEA) classification of the Great Lakes states, which consists of the five states of Illinois, Indiana, Michigan, Ohio, and Wisconsin. We obtain classical business cycle turning points using the Bry and Boschan’s (1971) algorithm and a series of coincident index for the Great Lakes states published by the Federal Reserve Bank of Philadelphia for 1979:I – 2013:III . We find strong evidence that the business cycles of Indiana, Ohio, and Wisconsin are highly synchronized, and also synchronized with the U.S. business cycles. Michigan’s business cycles and to some extent, Illinois’s business cycles are the most unlike their Great Lakes neighbors. Thus, it would be inappropriate to characterize the Great Lakes region as a homogeneous region.