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Local Economic Development: What Works?

This presentation by Timothy J. Bartik of the W.E. Upjohn Institute discusses two main types of economic development: export-based and land development. Export-based development focuses on businesses that create jobs by selling outside the local area, necessitating targeted financial incentives and customized local support services. In contrast, land development aims to overcome site-specific barriers in targeted areas, emphasizing fiscal benefits and local labor market enhancements. Strategies must incorporate not only financial assistance but also essential services tailored to maximize local economic potential.

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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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