Essays in Economic Growth and Development Policy

It is well known that state and local economic development officials compete across jurisdictions in terms of offering financial incentives to locate in their area. After decades of research, there is no clear consensus on the effects of economic development incentives. The effects of this controversial economic development policy are explored in three essays. The research provides theoretical, measurement, and empirical contributions to the study of economic development incentives.;The first essay models economic development incentives competition as a game of imperfect information with heterogeneous players. It extends the basic incentives game framework utilized in previous research in three important ways: 1) assuming heterogeneous communities with a priori unknown (to the communities or the firm) benefits and costs associated with the location, 2) providing a mechanism for communities to discover their true benefits and costs, and 3) allowing firms, as well as communities, to experience consequences associated with accepting a 'bad deal'. The proposed model explains observed outcomes and bidding behaviors. Additionally, the results provide some practical policy guidance for jurisdictions and economic development practitioners engaged in incentives competition.;The second essay exploits the dynamics of competition to create a local incentives availability measure. Employing the Incentives Environment Index and a proposed model of local employment with incentives, the essay provides insight into one important unresolved question: does increasing the availability of public aid to private enterprise support local employment growth? Utilizing panel data from 1970-2002, random trend models estimate US county employment level and growth effects. To strengthen identification, a natural experiment methodology is also employed by restricting the sample to counties that share a state border. The results call into question the generally accepted practitioner view that providing more economic development incentives to attract capital will result in more jobs.;Essay three tests whether a set of heavily incentivized firms generate the spillovers required for incentives to induce a virtuous cycle of economic development. Using two identification strategies, the paper test for agglomeration spillovers using indirect measures suggested by theory. The paper also tests for effects on public revenues and expenditures. The identification strategies tell different stories regarding the magnitude of productivity spillovers. Neither identification strategy provides much evidence that this set of firms induce a virtuous cycle of economic development.