Bidding for Business: New Evidence on the Effect of Locally Offered Economic Development Incentives in a Metropolitan Area

The use of local economic development incentives within a metropolitan area has undergone less analysis than incentives that attempt to alter interregional business location decisions. This is unfortunate because other factors that influence where business resides are constant across cities in a metropolitan area, and a properly used incentive is more likely to alter a business location decision. To comment on these issues, the authors use a simultaneous equation model to conduct regression analyses of panel data from 112 cities in the Detroit metropolitan area. They find that only certain forms of local incentives, at certain times, exert the expected positive influence on the local value of commercial and manufacturing property. The findings are tied to issues related to the redistribution of economic activity from the core to the periphery in U.S. metropolitan areas, and the authors conclude with policy suggestions on the future use of local incentives.