Sectoral growth patterns at the metropolitan level: An evaluation of economic development incentives

Economic development incentives are much used and expensive, yet information on their effectiveness is scarce. This paper reports a regression analysis of employment growth in 37 disaggregated sectors across U.S. metropolitan areas in the time period 1977–1984. The results indicate that variation in taxes and subsidies are not related significantly to the location of either high-technology manufacturing or most services. Our results suggest, however, that enterprise zones and university research parks, which may be proxies for focused economic development programs, are associated with increased job growth. Nevertheless the strongest determinants of growth are localization and urbanization externalities, along with labor costs and skill factors. We hypothesize that localization economies operate through the reduction of information costs, especially those associated with firms' search behaviors for skilled labor forces.