Bidding for Business: The Efficacy of Local Economic Development Incentives in a Metropolitan Area

As communities go toe-to-toe in battles to attract capital and jobs to their depressed areas, local policy makers are left to ponder the success of these costly efforts. Are the litany of economic incentives provided by cities to firms for relocation or expansion worth the cost? Do local economic incentives bring jobs to areas with high levels of unemployment? Or are economic incentives little more than corporate welfare?

Anderson and Wassmer examine the use and effectiveness of local economic development incentives within a specific region, the Detroit metropolitan area. The Detroit area serves as a good example, they say, because of the area's 20-plus year track record of its communities offering the gamut of economic incentives aimed at redirecting economic activity and jobs. The evidence they uncover reveals factors that drive cities not just in this Southeast Michigan area, but nationwide to offer particular types of incentives that are more or less generous than those offered by their neighbors.

Their work also shows how the redistribution of economic activity within most metropolitan areas has created a spatial mismatch between low-skilled employees living in central cities and inner suburbs and potential employers located increasingly farther out in suburbia.