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/
Two Types of Economic
Development
1. Export-base economic development: Boosting
start-up/expansion/location of firms that “export”
outside metro area.
2. 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.
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
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)
Export-base economic development:
popular strategies may be problematic
1. Direct government loans/investment: not
government comparative advantage, proper
incentives for quasi-private solutions are
preferable.
2. Industry targeting: Government lacks crystal
ball. Soft targeting of services on existing
strengths happens naturally.
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)
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.