Local Economic Development: What Works?

Timothy J. BartikSenior Economist

W.E. Upjohn Institute for Employment Research

Presentation at Municipal CFO Forum

May 3, 2013

bartik@upjohn.org

Blog: http://investinginkids.net/

Two Types of Economic Development

1. Export-base economic development: Boosting start-up/expansion/location of firms that “export” outside metro area.

2. Land development: Develop some land area (downtown, brownfield, neighborhood) with development barriers.

• Different benefits: labor market plus fiscal benefit for export-base development; fiscal plus land value plus land spillovers for land development.

• Two types need very different strategies.

Export-base economic development

Financial incentives often costly per job created, so success requires targeting on:

• Export-base

• Job creation/investment decisions, not static businesses.

• High-wage

• High-multiplier (high wages plus supplier network)

• More likely to hire locally

Export-base economic development

Customized services more cost-effective than financial incentives

• Customized job training

• Manufacturing extension

• Small business development

• Ease of “red tape”

• Land/building availability

In long-run, development prospects dominated by quality of local labor force (Preschool, K-12, community colleges)

Export-base economic development: popular strategies may be problematic

1. Direct government loans/investment: not government comparative advantage, proper incentives for quasi-private solutions are preferable.

2. Industry targeting: Government lacks crystal ball. Soft targeting of services on existing strengths happens naturally.

Land development

• Benefits and solutions are site-specific: specific barriers facing site, and site’s role in city.

• Financial incentives alone are rarely enough to dramatically change development patterns of troubled area. Incentives plus services targeting barriers (e.g., brownfield, crime, infrastructure)

Summary

• For both export-base development and land development, consider needed services, not just financial assistance, as providing more cost-effective strategy.

• Export-base economic development is labor market program that overcomes barriers to labor demand and enhances labor supply.

• Land development is overcoming site-specific barriers.