Making State Incentives Work: the Role of the Local Development Organization in the Economic Development Process.

Abstract

This study asks questions regarding: (1) the effect of certain demographic, political, and economic factors (including state economic development incentives) on local development organization activity; (2) the effect of these same factors on local Chamber of Commerce (as representative local development organizations) activity; (3) the effects of a "package" of assorted state incentives on selected measures of economic growth; and (4) the manner in which local Chambers h and le inquiries from firms about their communities, and the additional information they require to carry out their economic development activities. The questions regarding local development organization activity, local Chamber activity, and state incentives impacts were explored using multiple regression analysis. Local Chamber procedures and information needs pertaining to their economic development functions were examined via a statewide survey of these organizations, in Michigan. It was found that there are factors, within the control of state governments, which are statistically related to local development organization activity. The nature of this relationship may depend upon whether the factor in question acts as a complement to or substitute for local development organization activity. The same was found to be true for local Chambers of Commerce. This suggests that state governments may wish to give more consideration to the impact of their development-related actions and carefully weigh their benefits vis a vis local development efforts. It was also found that, in some instances, state incentives are positively correlated with statewide economic growth, as measured by plant expansions, new plant construction, and new jobs created, when combined in carefully selected "packages." This is not conclusive proof that a package of incentives will have a positive effect on these measures of economic growth, but it does tend to afford hope to supporters of state inducements. Finally, it was determined from the survey of local Chambers in Michigan that these organizations are in need of more information, and more cooperation from state government, to assist them in their economic development efforts.