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Speaking Falsehoods to Power: States' Misguided Use of 'Cost-of-Doing-Business' Studies in Economic Development Policy

  • Luger, Michael I.

    (U Manchester)

  • Bae, Suho

    (San Francisco State U)

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    Economic developers at the local and state levels have increasingly used cost-of-doing-business studies to compare their jurisdictions against others. The cost of doing business is enormously difficult to demonstrate in practice because: (1) there are many different types of business costs, many of which are difficult to measure; (2) in making their location choices, businesses take into account more than direct cost differences; and (3) businesses often behave in a dynamic way and either change how they operate to accommodate cost increases or accept some high costs if there are compensating lower costs or benefit payoffs in a particular location. This paper shows that the data and methods used in typical cost-of-doing-business studies are flawed and incomplete and therefore the implications of the studies are misleading.

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    Article provided by Southern Regional Science Association in its journal Review of Regional Studies.

    Volume (Year): 36 (2006)
    Issue (Month): 1 ()
    Pages: 15-43

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    Handle: RePEc:rre:publsh:v:36:y:2006:i:1:p:15-43
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    1. Wayne B. Gray, 1997. "Manufacturing Plant Location: Does State Pollution Regulation Matter?," NBER Working Papers 5880, National Bureau of Economic Research, Inc.
    2. Todd M. Gabe & Kathleen P. Bell, 2004. "Tradeoffs between Local Taxes and Government Spending as Determinants of Business Location," Journal of Regional Science, Wiley Blackwell, vol. 44(1), pages 21-41.
    3. Margaret E. Dewar, 1998. "Why State and Local Economic Development Programs Cause so Little Economic Development," Economic Development Quarterly, W.E. Upjohn Institute for Employment Research, vol. 12(1), pages 68-87, February.
    4. Schmenner, Roger W. & Huber, Joel C. & Cook, Randall L., 1987. "Geographic differences and the location of new manufacturing facilities," Journal of Urban Economics, Elsevier, vol. 21(1), pages 83-104, January.
    5. Love, Lisa L. & Crompton, John L., 1999. "The Role of Quality of Life in Business (Re)Location Decisions," Journal of Business Research, Elsevier, vol. 44(3), pages 211-222, March.
    6. Papke, Leslie E., 1991. "Interstate business tax differentials and new firm location : Evidence from panel data," Journal of Public Economics, Elsevier, vol. 45(1), pages 47-68, June.
    7. Tim Jeppesen & John A. List & Henk Folmer, 2002. "Environmental Regulations and New Plant Location Decisions: Evidence from a Meta-Analysis," Journal of Regional Science, Wiley Blackwell, vol. 42(1), pages 19-49.
    8. Michael E. Porter, 2000. "Location, Competition, and Economic Development: Local Clusters in a Global Economy," Economic Development Quarterly, W.E. Upjohn Institute for Employment Research, vol. 14(1), pages 15-34, February.
    9. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
    10. Paul D. Gottlieb, 1994. "Amenities as an Economic Development Tool: Is there Enough Evidence?," Economic Development Quarterly, W.E. Upjohn Institute for Employment Research, vol. 8(3), pages 270-285, August.
    11. Edward L. Glaeser, 2001. "The Economics of Location-Based Tax Incentives," Harvard Institute of Economic Research Working Papers 1932, Harvard - Institute of Economic Research.
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