Comments and Discussion

Brookings Papers on Economic Activity, Spring 2018 | Go to article overview

Comments and Discussion


COMMENT BY

CILLES DURANTON To appreciate the contribution of this paper by Benjamin Austin, Edward Glaeser, and Larry Summers and some of its strengths and limitations, it is useful to start with a bit of intellectual history. The vast majority of economists hold negative views about place -based policies. For instance, in their review chapter in the recent Handbook of Regional and Urban Economics, David Neumark and Helen Simpson (2015, p. 1279) reach a mostly negative conclusion:

In our view, a major shortcoming of the research on place-based
policies is that even the most positive evidence on their effectiveness
does not establish that they create self-sustaining economic gains.
That is, at best, the evidence (sometimes) says that when place-based
incentives are in effect, there are increases in economic activity and
perhaps welfare.

In an older essay published in the Brookings Papers, Glaeser and Joshua Gottlieb (2008) also conclude negatively. They argue that the efficiency case for relocating economic activity relies on assumptions for which empirical support is lacking, while equity objectives could be achieved at much lower costs, using more direct instruments.

Although I believe that the conclusions of Neumark and Simpson (2015) and Glaeser and Gottlieb (2008) appropriately reflect what we know, they overlook two fundamental elements. The first is that many public goods are lumpy and need to be located somewhere. In many circumstances, spatial choices simply cannot be avoided. This dimension is particularly, but not only, salient for infrastructure. The second overlooked element is that countries, including the United States (or perhaps especially the United States) are far from homogeneous. The response to policy changes, from setting interest rates to providing unemployment benefits, will potentially differ across regions. One policy size will not fit all. Hence, a good case can be made that policies should differ across the regions of a country. These two elements suggest that economists, who have been rightfully wary of the hubristic nature of many place-based policies, may have thrown the baby of spatial differentiation out with the bathwater of egregious past place-based policies.

With this in mind, the first great merit of this paper is to bring regional issues back onto the agenda and provide a more balanced look at them, acknowledging and providing evidence for the fact that the fundamentals of the economies of U.S. regions differ and that these differences potentially call for spatially differentiated policies. More specifically, the main claim made in the paper is unemployment and withdrawal from the labor market--the "lack of jobs"--is the outcome of labor market fundamentals that vary across places. These differences call for different policy responses, including more generosity for unemployment benefits and perhaps jobs subsidies in a group of noncoastal states east of the Mississippi River that they call the eastern heartland. This is the second merit of this paper. It sticks its head out and makes a fairly concrete set of proposals.

To structure the rest of this discussion, I rely on my recent research with Anthony Venables (Duranton and Venables 2018), which we prepared for the World Bank to provide guidelines for place-based policies and infrastructure investments in developing countries. Before going any further, a number of comments are in order. Quite obviously, the eastern heartland's problems differ quite considerably from those of lagging regions in Africa or even South America. This difference is, however, one of degree but not nature. The seven principles that I use below are general enough that they should apply to place-based policies in the United States, including the proposals made by Austin, Glaeser, and Summers. A more serious caveat is that my discussion below might be taking the authors' proposal more seriously than they themselves intended. …

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