Transcript Empirical Studies of Location Decisions

Business Location and Public
Policy
Outline
• How much do factors such as wages, public
services influence business location decisions?
• What are local economic development strategies?
• Do these strategies attract businesses?
• Do benefits outweigh the costs?
• Is Local Economic Development a zero-sum
game?
Source of Information
• Surveys of businesses about the relative
importance of different location factors
• Case studies of specific location decisions
• Econometric studies
Methodological Issues
• Complexity of business location decision
• Durability of capital and agglomeration
economies
• Measurement issues
• Unobservable characteristics of localities
• Endogeneity of crucial explanatory
variables
Summary of Results from Studies of Wage
Effects on Business Location
All inte r-area
studi es
Inter-area
studi es with
fixed effec ts
Inter-area
studi es with
employm ent
dependent
variable
% with at least Mean Longnegativ e and
Run Elasti city
statisti cally
signi ficant
coefficient
62%
-.67
[-4.39 to 1.66]
Trimm ed
Mean
Elasticity
Median
Elasticity
-.50
[-2.47-.27]
-.36
71%
-.64
[-3.16 to -.27]
-.31
[-.58 to -.12]
-.27
60%
-.89
[-3.16 to .18]
-.74
-.50
[-2.47 TO -.05]
SOURCE: BARTIK, P. 51
Effects of Public Services
High ways
Positiv e ,
Signi ficant
3 out of 9 studi es
Not Signi ficant
4 out of 9
Negativ e
Signi ficant
2 out of 9
Railroads &
Airports
Poli ce/Fire
1 out of 1
3 out of 7
3 out of 7
Education
6 out of 16
8 out of 16
2 out of 16
4 out of 9
5 out of 9
Welfare
Source: Bartik, Appendix Table 2.3
Summary of Tax Effects
% of Studies
with at least one
statistically
sign ificant
negativ e tax
effect
Mean
Elasticity o f
Busin ess
Activity with
Respect to
Taxes
-.25
[-1.40 to .76]
Trimm ed
Mean
Elasticity
Median
Elasticity
-.22
[-.73 to 0.4]
-.15
Inter area
studi es
70%
Inter area
studi es with
controls for
fixed effec ts
Inter area
studi es with
publi c service
controls
92%
-.44
[-1.02 to 0]
-.43
[-.88 to -.07]
-.35
80%
-.33
[-1.40 to .76]
-.33
[-.77 to 0]
-.27
Economic Development Policies (Bartik)
• Market area
• Financial Incentives
–
–
–
–
Industrial revenue bonds
Property tax abatements and other tax relief
Provision of land at below market prices
Direct state loans
• Non-financial Incentives
– Customized training
– Expedited provision of infrastructure
– Regulatory relief
New Wave Development Policies
(Bartik)
•
•
•
•
Capital market programs
Information/Education for Small Business
Research and high tech centers
Export Assistance
Bartik’s Table 2.1
• Enterprise zones -- mixed results
• Research parks and marketing efforts have
positive effects
• Tax breaks and other financial incentives
tend to have positive effects
Do Benefits Outweigh the Costs?
• Saturn Example
– Identify constituencies: unemployed who get
jobs; homeowners; local businesses;
landowners, local government
– Multiplier large or small? Use of imported
goods vs local goods; wages paid
• Sports Facilities
Location Quotient
e  US 
LQ   i    i 
i e  US 
t
t
LQi = Locat ion quotient for indust ry i
e i = Local employment in indust ry i
e t = T ot al local employm ent
USi = Nat ional employment in indust ry i
USt = T ot al national em ploym ent
Question for Discussion
In a report issued in September 1989, a consulting firm estimated the
economic impacts of moving the Los Angeles Raiders (a professional
football team ) to Sacramento. The economic base study was based on
the following assumptions:
–
–
–
–
–
Total attendance at the Raider games will be 700,000 people per year.
The average ticket price will be $30
The average fan will spend $10 on food, merchandise, and parking.
Based on the above, the average fan will spend a total of $40
Total direct spending will be $28 million per year
Using a spending multiplier of 2.2, the consulting firm estimated the total
economic impact of the Raiders to be $61.6 million per year. Critically
appraise the methods used to compute the total economic impact.
Zero Sum Game?
Offer Incentives
Offer Incentives
Do Not Offer
Incentives
Firm chooses city that
has lowest costs (preincentives), but
receives incentives.
Firm chooses city that
offers incentives.
Do Not Offer
Incentives
Firm chooses city that
offers incentives
Firm chooses city that
has lowest costs (preincentives), but does
not receive package
Bartik’s Argument
• New wave policies encourage productivity.
• Benefits of economic development policies
that redistribute jobs from low
unemployment areas to high unemployment
areas may outweigh the costs.