More employers, more jobs, more money: An empirical analysis of local economic development policy impacts in US cities

Stuart Strother

doi:10.2298/pan0704445s

Abstract

Local government leaders in the U. S. employ a multitude of programs and policies in the name of economic development to increase the number of firms, employment, wages, and, of course, the tax base. The past few decades have seen a surge in local economic development policies, yet research analyzing their effectiveness is sparse. This study analyzes the relationship between local economic development policy and economic growth in a data set of 412 U. S. cities. Results indicate that policy has only has a weak correlation with economic growth, suggesting that growth is determined more by market conditions rather than government intervention. The article concludes with an entrepreneurial policy approach this author believes may yield development results in an era of limited policy effectiveness.

Highlights

City governments face the classic economic problem of resource scarcity, and they must choose how to allocate scarce resources among numerous competing interests
Public and private sector leaders employ a multitude of programs and policies commonly dubbed “economic development” activities with the goal of increasing output resulting in economic growth and higher living standards for all in the region
The inquiry is guided by the age-old question, “To what extent can government influence markets?” The major hypothesis of this study is, “The level of public sector economic development activity in U.S cities is positively correlated with local economic growth.”

Summary

Introduction

City governments face the classic economic problem of resource scarcity, and they must choose how to allocate scarce resources among numerous competing interests. Public and private sector leaders employ a multitude of programs and policies commonly dubbed “economic development” activities with the goal of increasing output resulting in economic growth and higher living standards for all in the region. This study is an analysis of the economic development policy impacts in American cities. The inquiry is guided by the age-old question, “To what extent can government influence markets?” The major hypothesis of this study is, “The level of public sector economic development activity in U.S cities is positively correlated with local economic growth.”. The study uses a large data set of American cities built from multiple sources to analyze the relationship between economic development programs and economic growth in as measured by increases in firms, jobs, and income

Methods

Results

Conclusion