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Local Economic Development: What Works?

Local Economic Development: What Works?. Timothy J. Bartik Senior 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.

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Local Economic Development: What Works?

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  1. Local Economic Development: What Works? Timothy J. Bartik Senior Economist W.E. Upjohn Institute for Employment Research Presentation at Municipal CFO Forum May 3, 2013 bartik@upjohn.org Blog: http://investinginkids.net/

  2. Two Types of Economic Development Export-base economic development: Boosting start-up/expansion/location of firms that “export” outside metro area. 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.

  3. 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

  4. 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)

  5. Export-base economic development: popular strategies may be problematic • Direct government loans/investment: not government comparative advantage, proper incentives for quasi-private solutions are preferable. • Industry targeting: Government lacks crystal ball. Soft targeting of services on existing strengths happens naturally.

  6. 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)

  7. 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.

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