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

Author

Listed:
  • Luger, Michael I.

    (U Manchester)

  • Bae, Suho

    (San Francisco State U)

Abstract

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.

Suggested Citation

  • Luger, Michael I. & Bae, Suho, 2006. "Speaking Falsehoods to Power: States' Misguided Use of 'Cost-of-Doing-Business' Studies in Economic Development Policy," The Review of Regional Studies, Southern Regional Science Association, vol. 36(1), pages 15-43.
  • Handle: RePEc:rre:publsh:v:36:y:2006:i:1:p:15-43
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    References listed on IDEAS

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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. 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.
    3. 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.
    4. 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.
    5. Paul D. Gottlieb, 1994. "Amenities as an Economic Development Tool: Is there Enough Evidence?," Economic Development Quarterly, , vol. 8(3), pages 270-285, August.
    6. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    7. Michael E. Porter, 2000. "Location, Competition, and Economic Development: Local Clusters in a Global Economy," Economic Development Quarterly, , vol. 14(1), pages 15-34, February.
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    9. Edward L. Glaeser, 2001. "The Economics of Location-Based Tax Incentives," Harvard Institute of Economic Research Working Papers 1932, Harvard - Institute of Economic Research.
    10. 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.
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    More about this item

    Keywords

    Policy;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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