Measuring Local Economic Development Policy and the Influence of Economic Conditions *

By Neiman, Max; Fernandez, Kenneth | International Journal of Economic Development, July 1999 | Go to article overview

Measuring Local Economic Development Policy and the Influence of Economic Conditions *


Neiman, Max, Fernandez, Kenneth, International Journal of Economic Development


Abstract

Based on a completed, large-scale study of suburban cities in Southern California (N=202) this paper reports on the existence and usefulness of measuring local economic development policy in various ways. The policy measures were derived from an extensive survey of local economic development officials. Comparisons between simple additive scales of total policy activity and additive scales derived from factor analysis are made. After comparing the results of regression analysis of local policies measured in several ways, it is concluded that in some instances explanations of local policies are best approached by measuring policy in fairly simple ways. In this case, our set of conventional independent variables explains the most amount of variation in the additive measure. Moreover, the patterns of findings do not alter in substantively important ways when the policy measure is altered. The most salient finding is that both poverty levels and average income were both negatively correlated with our policy measures. Further examination of income and poverty show empirical support for Goetz's uneven development hypothesis.

Introduction

Competition among localities for economic growth is among the most pervasive facts of contemporary urban life. States and localities, in order to keep existing or attract new commerce, find themselves in bidding wars with neighboring jurisdictions and, sometimes, with distant counterparts. So we have the spectacle of communities in California and Virginia competing against each other for a Legoland theme park. A growing lore exists regarding these on-going economic battles over shopping centers, department stores, manufacturers, professional sports teams, auto centers, and government office buildings. Subsidies, incentives, and a host of efforts to shape the locational decisions of businesses have proliferated. Indeed, in any given period, when considering the nation as a whole, billions of dollars are allocated or committed by states and localities in order to woo commerce or to retain the affections of those commercial establishments that already reside there.

Whether or not these efforts amount to anything for a state or locality is another matter. Indeed, there is a lively debate over the efficacy of these various efforts to attract and retain economic activity (Bartick, 1992; Feiock, 1991). But apart from the impact of these policies, it is clear that many resources are tied up in this competition and most local officials seem to believe they are beneficial, if not necessary. Indeed, whether or not such policies actually affect local economic activity, there are powerful political incentives for localities participating in the competition. Without state government actions to reduce such competition, it is likely that local government will continue to try to influence the deployment of economic activity. Moreover, in states where state revenue is disproportionately returned to communities of origin and where revenue-raising constraints have become severe there are fiscal motivations to seek the sort of development that raises more revenue than it imposes in service costs.

There are at least two other reasons that communities might, apart from any evidence respecting the impact of such policies, continue to enact programs that purport to attract economic activity. First, as localities produce programs to attract economic development, their neighboring locales might react in what is perceived as a required response to "stay competitive." Second, the logic of competition makes even skeptical local officials likely to enact policies, since not producing is politically risky, while enacting them is not. For example, in a context where localities see one another as competing for economic development, officials who eschew enacting such policies run the risk of being indifferent to the well-being of their constituents. If a business locates in a community that courted that business and another locality was perhaps "in the running," then if officials seemed indifferent, then they will be blamed for the business locating elsewhere. …

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