Identifying the Economic Development Effects of Million Dollar Facilities

Abstract

Using tax abatements, financial incentives, and public investments to attract (or retain) firms is the primary economic development tool for many local governments. Recent estimates suggest Million Dollar Plants (MDPs) generate large productivity spillovers which may justify the substantial incentive packages used to lure them. This paper employs the Greenstone, Hornbeck, and Moretti (2010) identification strategy, as well as an alternative identification strategy, to estimate aggregate county effects from “winning” the competition for a MDP. Using both identification strategies, I test for the presence of agglomeration spillovers as well as for MDP effects on public revenues and expenditures. The identification strategies tell different stories about MDP effects. Evidence in favor of productivity spillovers is modest when identified by the alternative strategy. Neither identification strategy provides much evidence that MDPs induce the virtuous cycle of economic development.