Stalking Local Economic Development Benefits: A Review of Evaluation Issues

Abstract

There is widespread civic concern about the gap between local economic development promises and outcomes, particularly for business incentives made available by local jurisdictions. This article examines how this problem results from the design limitations of local economic development policy, the typical result being vaguely designed programs with multiple goals. A case study of Industrial Development Bonds (JDBs) in Chicago between 1977 and 1987 is used to show how this failure in design results in selection bias in which firms obtained IDBs. It finds that research about how governments operate IDB programs, how firms use IDBs, and how interurban competition influences program operations are neglected topics in the evaluation literature concerned with business incentives. Two shortcomings in IDB research are the lack of control groups to isolate IDB effects and the over reliance on jobs as a measure of program success. The contemporary evolution of more diverse economic development strategies poses serious challenges for evaluation research because there is so much local variation in program design and projected impacts. Closing the credibility gap about local economic development will be difficult, but budget tightening, heightened civic expectations, and a renewed focus on human capital investment may create pressure for better designed business incentives.