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Business Location and Public Policy

Business Location and Public Policy. Outline. How much do factors such as wages, public services influence business location decisions? What are local economic development strategies? Do these strategies attract businesses? Do benefits outweigh the costs?

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Business Location and Public Policy

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  1. Business Location and Public Policy

  2. Outline • How much do factors such as wages, public services influence business location decisions? • What are local economic development strategies? • Do these strategies attract businesses? • Do benefits outweigh the costs? • Is Local Economic Development a zero-sum game?

  3. Source of Information • Surveys of businesses about the relative importance of different location factors • Case studies of specific location decisions • Econometric studies

  4. Methodological Issues • Complexity of business location decision • Durability of capital and agglomeration economies • Measurement issues • Unobservable characteristics of localities • Endogeneity of crucial explanatory variables

  5. Summary of Results from Studies of Wage Effects on Business Location SOURCE: BARTIK, P. 51

  6. Effects of Public Services Source: Bartik, Appendix Table 2.3

  7. Summary of Tax Effects

  8. Economic Development Policies (Bartik) • Market area • Financial Incentives • Industrial revenue bonds • Property tax abatements and other tax relief • Provision of land at below market prices • Direct state loans • Non-financial Incentives • Customized training • Expedited provision of infrastructure • Regulatory relief

  9. New Wave Development Policies (Bartik) • Capital market programs • Information/Education for Small Business • Research and high tech centers • Export Assistance

  10. Bartik’s Table 2.1 • Enterprise zones -- mixed results • Research parks and marketing efforts have positive effects • Tax breaks and other financial incentives tend to have positive effects

  11. Do Benefits Outweigh the Costs? • Saturn Example • Identify constituencies: unemployed who get jobs; homeowners; local businesses; landowners, local government • Multiplier large or small? Use of imported goods vs local goods; wages paid • Sports Facilities

  12. Location Quotient

  13. Question for Discussion In a report issued in September 1989, a consulting firm estimated the economic impacts of moving the Los Angeles Raiders (a professional football team ) to Sacramento. The economic base study was based on the following assumptions: • Total attendance at the Raider games will be 700,000 people per year. • The average ticket price will be $30 • The average fan will spend $10 on food, merchandise, and parking. • Based on the above, the average fan will spend a total of $40 • Total direct spending will be $28 million per year Using a spending multiplier of 2.2, the consulting firm estimated the total economic impact of the Raiders to be $61.6 million per year. Critically appraise the methods used to compute the total economic impact.

  14. Zero Sum Game?

  15. Bartik’s Argument • New wave policies encourage productivity. • Benefits of economic development policies that redistribute jobs from low unemployment areas to high unemployment areas may outweigh the costs.

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