Are Rural Costs of Living Lower? Evidence from a Big Mac Index Approach

Abstract

Rural leaders can point to low housing costs as a reason that their area should be competitive for business attraction. To what extent do rural housing costs offset transportation and other locational disadvantages in cost structures? The United States lacks information to systematically answer the question. We adapt a strategy employed by The Economist in exploring purchasing power parity: the Big Mac index. We gather information on Big Mac prices with a random sample of restaurants across the contiguous United States. We find that core metro counties exhibit slightly higher Big Mac prices than other counties, but that differences across the balance of the rural–urban continuum code are not significant, implying that costs in a metroadjacent county are not different than areas that are much more rural. We show that some groups of states exhibit lower prices, especially in the southeast. Furthermore, we test for the presence of spatial monopoly and find that distance to other MacDonald’s restaurants has some influence on price. Stores at a greater distance from their competitors tend to charge more, ceteris paribus. We also show our results are consistent with other localized estimates of living costs. Our general findings could help rural decision makers determine whether their area truly holds cost advantages for firms looking to relocate.