According to a new analysis from McKinsey and Heartland Forward, published October 1st, the biggest advantage in the middle of the country isn't simply available land or lower costs. It's whether local leaders can build the workforce, housing, infrastructure, and partnerships needed to turn investment into lasting prosperity. The report cites earlier research for its meta-analysis, and here we’ve delved into the numbers so you don’t have to.
Essential Takeaways
The heartland is huge: Its 20 states generate more than one-third of US GDP and include nearly two-fifths of the country's population. Combined, they would rank as the world’s third-largest economy.
Capital remains uneven: The region attracted approximately 10 percent of US venture capital between 2019–24, 29 percent of fixed-capital lending, while Rural areas drew just 7 percent of philanthropic funding, despite the region’s economic weight.
Small cities matter: Heartland ‘micropolitan’ areas alone produce roughly $810 billion in economic output - roughly the combined output of three Iowas - according to the report and support industries ranging from manufacturing to healthcare.
Readiness is broader than a business park: Housing, childcare, schools, healthcare, infrastructure, and local coordination can determine whether a project succeeds.
Advanced manufacturing is moving outward: About 63 percent of announced US advanced-manufacturing investment is expected within 15 miles of rural communities.
Funding formulas favor metros: The report HUD distributes 70 percent of Community Development Block Grant money directly to metropolitan entitlement communities by formula; micropolitan areas compete for the remaining 30 percent through state programs.
America's overlooked economic engine is already running
Across 20 central states, the heartland of America already produces around 35 percent of US GDP, according to the data included in the report. It takes in all 12 Midwestern states (Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin) as well as Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Oklahoma, Tennessee and Texas, which makes heartland figures broader than Midwest figures. Yet the region receives a much smaller slice of private investment, creating a striking mismatch between economic contribution and investor attention. The report estimates that if the heartland’s share of US GDP matched its 39 percent share of the population, the region would generate approximately $2 trillion in additional economic output. That gap is especially visible in smaller regional centers. These communities may not have the skyline of Chicago or Dallas, but they often anchor factories, farms, hospitals, distribution networks, energy operations, and public services for wide surrounding areas. Their economic footprint stretches well beyond city limits, even when population figures are modest.
Why micropolitan communities deserve a closer look
A micropolitan area is defined as one with an urban core of 10,000 to 49,999 residents, plus nearby counties linked through commuting and economic activity. The country has 538 such areas, and roughly three-fifths of these are in the heartland, making them foundational to the region's economic geography. By comparison, the nation’s 387 metropolitan areas hold about 86 percent of the US population, while micropolitan areas hold about 8 percent.
These heartland areas also represent 55 percent of the economic value generated by all US micropolitan areas. That's a substantial base for communities often treated as too small to matter. Their scale can also be a strength. Shorter commutes, lower housing costs, close employer-school relationships, and strong local networks can make it easier to move from an idea to action. But there is less room for failure, too. A shortage of childcare, healthcare providers, skilled workers, or suitable housing can quickly become a handbrake on growth.
That economic base cuts both ways. Manufacturing, agriculture and resource extraction account for 15 percent of jobs in micropolitan areas, compared with 7 percent in large metropolitan areas. The report says this production-oriented base brings competitive advantages but also “higher exposure to employer concentration, commodity cycles and workforce shortages.” Size within the category matters, as well. Micropolitan areas with populations above the median have 23 percent of jobs in core industrial sectors, compared with 9 percent in smaller micropolitans, and 28 percent of their adults hold a bachelor’s degree or higher, versus 18 percent.
Classification also affects access to federal money. Communities whose urban core tops 50,000 residents must have a metropolitan planning organization (MPO) with dedicated federal planning responsibilities; many micropolitans have none and depend on state and nonmetropolitan processes to set regional transportation priorities. Block grants split the same way: the US Department of Housing and Urban Development sends 70 percent of Community Development Block Grant funding to metropolitan entitlement communities by formula, while micropolitan areas compete through state-run programs for a share of the other 30 percent.
Factories need more than just an empty site
Advanced manufacturing is putting these communities in the spotlight. Earlier McKinsey research - cited in the report - found that about 63 percent of the $1 trillion in announced US advanced-manufacturing projects is expected to land within 15 miles of rural communities. That sounds like excellent news, but a factory announcement is really only the beginning. A town needs enough workers to staff the facility, homes for new arrivals, reliable roads and broadband, available power and water, and training programs that match real job requirements. The report’s investment readiness checklist tells investors to look at “whether power, water, broadband and transportation have room to absorb a major new employer without new build-out.” It also needs local officials and employers who can make decisions quickly rather than sending every issue into a maze of disconnected agencies.
This is where the idea of investment readiness becomes useful.
The framework suggested in the report looks at three areas:
In plain English, this means investors aren't just asking, "Can we build here?" They're also asking, "Can this place support what comes next?" Housing, childcare, and healthcare are also business infrastructure, after all.
The report also places communities along a spectrum of three investment readiness profiles. “Organic or opportunistic” places have real assets and some momentum, but their investment activity is largely reactive and project-specific. Communities in the “targeted engagement and retention” profile have a right to win in a handful of sectors but still need a defined strategy, closer coordination and attention to workforce, infrastructure, sites and capital. Communities ready for “economy-shifting investments” have the aligned systems, scalable infrastructure and coordinated execution to support transformational, large-scale projects and to build new growth paths rather than only accelerating existing ones.
Lower costs give smaller communities an immediate advantage.
Typical home prices in micropolitan areas are about 3.6 times local income, compared with 4.3 times in metropolitan areas, while median gross rent is about 21 percent lower at $894 a month versus $1,137, including utilities. In half of micropolitan areas, a median-income household earns enough to afford the typical home, compared with fewer than 27 percent of metropolitan areas. Those savings can help attract workers priced out of larger cities. Still, affordability doesn't guarantee availability. Across rural communities, 41 percent of renters are cost-burdened, spending more than 30 percent of their income on housing. Older homes, limited new construction, and a narrow mix of housing types can leave communities scrambling when a major employer expands or lands in their town.
These towns may have inexpensive houses on paper but not necessarily anywhere suitable for a new family to move into in the coming month. That isn’t just a minor inconvenience, it also becomes a hiring problem. Childcare is often another deal-breaker. About 60 percent of micropolitan areas qualify as childcare deserts, and the analysis links inadequate supply with lower maternal workforce participation: in childcare deserts, maternal labor-force participation runs roughly three percentage points lower than where supply is adequate. Nor is childcare a cost advantage: for a family with two children, it equals 29.3 percent of median household income in micropolitan areas, versus 28.9 percent in metropolitan areas. Healthcare shortages create similar pressure, especially when small regional hospitals close or specialist care requires a long drive. Just 10 percent of physicians practice in rural communities, which hold roughly 20 percent of the US population, and 193 rural hospitals closed between 2005 and 2024. For employers, these aren’t just side issues in these small communities, they're also part of the reality of the local labor market.
There is also new money on the table. The report points to the $50 billion Rural Health Transformation Program, which funds states over five years to improve rural healthcare access, quality and outcomes, as an opening for small-city leaders to work with states and health systems on workforce pipelines and access to care.
There is no single small-city growth formula
Some communities can build on a specialized industry, while others need to lean into distinctive natural or cultural assets. A manufacturing town can't simply copy a resort economy, and a scenic destination can't manufacture a pharmaceutical cluster overnight. A smarter approach would be to identify what a community already does unusually well, then strengthen the workforce, infrastructure, and institutions around that advantage.
The report draws exactly that contrast. In McPherson, Kansas, a town of about 14,000, Pfizer’s plant specializing in sterile injectable medicines employed roughly 2,000 people in 2018 and produced about 125 million units of medicine a year, and Pfizer has invested $350 million there since acquiring the facility in 2015. The authors see that kind of specialized-industry growth as a model other communities can adapt. In Teton County, Wyoming, home to Jackson, tourism generates $526 million in revenue and close to 8,500 jobs on the strength of Jackson Hole and nearby Grand Teton National Park, advantages the report calls “inherently place-specific and harder to reproduce.”
Coordination can also turn modest improvements into meaningful momentum. In Ottumwa, Iowa, a regional center of about 25,300 residents, public agencies, employers, philanthropy, and private property owners combined infrastructure upgrades with downtown rehabilitation and housing support beginning in 2006. One centerpiece, a $6.1 million streetscape project, rebuilt three blocks of Main Street, including water, sewer, sidewalks and lighting, with $2.4 million from the Ottumwa Regional Legacy Foundation, $663,000 from Ottumwa Waterworks and about $3.1 million from the city. The reported result included $38.3 million in private investment, 271 property improvement projects, 77 new businesses and 305 new jobs through 2024, according to Main Street Ottumwa. It isn't flashy, but this kind of patient work is often what makes larger investment possible.
Sevierville, Tennessee, shows what coordination can do at a larger scale. From 2017 to 2022, the community grew employment 9.3 percent, average annual pay 33.0 percent and real GDP 22.1 percent, placing it among the nation’s top 30 micropolitan economies as ranked by Heartland Forward. At Interstate 40’s Exit 407, which carried more than 40,000 vehicles a day in 2021, the Eastern Band of Cherokee Indians is financing a $75 million, 200-acre development through its business development firm, Kituwah LLC, with public backing from city and tribal leaders. The first phase includes a Buc-ee’s and a Marriott hotel.
What investors and local leaders can do
For investors, smaller heartland markets may offer less competition and a chance to enter before prices and attention rise. The report urges investors to “view smaller markets as an untapped asset class rather than an afterthought,” and lenders to design products and underwriting standards for smaller communities instead of applying rigid urban models.
But due diligence should extend beyond tax incentives and available acreage. A useful checklist includes labor-force participation, supplier depth, housing supply, childcare access, healthcare capacity, broadband, transportation, and the local government's track record of delivering projects. Heartland Forward’s Investment Readiness Community Guidebook sets out a fuller version of that checklist, and its Center for Investment Readiness is piloting additional tools with participating communities.
For community leaders, the message is equally practical: start with shared facts and a clear priority. Not every town needs to chase every industry. The strongest cases will show where a community can compete, which barriers could derail growth, who owns each action, and how progress will be measured. Some of the most useful steps are cheap: the report suggests local governments set clear permitting timelines and add project navigators, fast-track processes for priority investments and consistent points of contact.
Employers and funders have roles, too. Companies that invest in affordable workforce housing, help finance local childcare or partner with community colleges are easing their own recruiting problems while making the region more attractive to the next investor. When public and private capital can’t be secured, philanthropy can provide more flexible, risk-tolerant funding, and the report suggests multiyear rather than project-by-project support for the community organizations that hold local coordination together.
Local leaders quoted in the report say a shared fact base changes how they operate. “Access to reliable, community-level data facilitates the alignment of our partners around clear priorities and smart investments that continue Chattanooga’s growth as a regional leader,” said Dr. Andrew Hudson, director of workforce development strategy for the City of Chattanooga. Ryan Egly, president and CEO of the Lawrence County Chamber, said, “Having reliable, up-to-date data behind our planning has changed how confidently we can pursue new investment and position our community for growth.”
We know that the heartland's opportunity is substantial, but it won't be unlocked by investment alone. Capital can build a plant, but it can't automatically create a workforce, a functioning childcare network, or trust among local institutions. Those foundations may be less visible than a ribbon-cutting, yet they're what determine whether the new jobs last. It's a small-city story with national consequences.
