Can Local Incentives Alter a Metropolitan City's Economic Development?

Abstract

Cities in the US and Europe have chosen increasingly to offer incentives designed to attract and retain local economic development. The increased use of local incentives has occurred with little or no empirical test of their effectiveness. This paper contains a statistical method that can be applied to any group of cities to measure the 'additive effect', or lack of it, that incentives exert on local economic development. Regression analysis applied to cities in the Detroit metropolitan area indicates that incentive efficacy depends on city-specific characteristics and how economic development is measured. Although there are situations where incentive offers exert an additive effect on local economic development, in a majority of situations this is not the outcome.

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