Academic journal article Monthly Labor Review

The Role of Small and Large Businesses in Economic Development

Academic journal article Monthly Labor Review

The Role of Small and Large Businesses in Economic Development

Article excerpt

One of the models traditionally used by U.S. communities to develop their local economies has been to recruit large businesses into their area by offering them tax breaks and other financial incentives. But in recent years, many communities have abandoned this model and instead have focused their efforts on developing new, smaller businesses and fostering an environment in which existing ones can grow. In a recent study in the Federal Reserve Bank of Kansas City's Economic Review, senior bank economist Kelly Edmiston examines the impact of this shift in development strategy by comparing the costs and benefits of the two models.

Edmiston begins his study with a discussion of the traditional model and argues that when large (100 or more employees) firms move into an area, the "net economic impact" on the local community is not always positive. Although these firms create jobs and generate income, their "indirect effects" on other firms tend to offset some of the gains. Existing companies will not expand as they would have or they might go out of business altogether. …

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