The Economic Impact of Development: Honda in Ohio

Abstract

Although states maintain an active, continually expanding portfolio of tax incentives, technological assistance, subsidized loans, tax exempt bonds, and direct loans to pursue economic development, the effectiveness, efficiency, and equity of these efforts have not been clearly established. Scott Fosler has identified a "knowledge gap " in evaluating the effectiveness of these programs. This knowledge gap reflects in part the relative newness of the programs, their complexity, the reluctance of policymakers to disturb the status quo and the paucity of data to make judgments. The purpose of this article is to help address that knowledge gap. The costs and benefits of the state of Ohio's investment in Honda are calculated to provide an assessment of that seminal initiative. In addition the analysis considers the portability of the findings to other economic development programs. Direct benefits to the state of Ohio and to local governments directly attributable to the Honda plants clearly exceed direct investment of tax dollars. Indirect effects are much more difficult to measure; however, it is clear that both indirect costs and indirect benefits are significant. The portability of the Honda experience to other venues should proceed with caution.