The Issue:

People’s economic fortunes are often tied to where they live. Telling people to move to high-income areas in the hopes of raising their economic fortunes downplays the costs and uncertainties of relocating, and also ignores the fact that people are tied to where they live by social connections, not just by their jobs. Given long-standing difficulties in certain locales, as well as more recent downturns caused by economic dislocations, can government programs targeting particular areas succeed in raising the standard of living of people in those areas?

The Facts:

• The most prominent place-based policy in the United States is federal and state enterprise zones. The federal Empowerment Zone program, for instance, was authorized in 1993 and targeted relatively poor areas with high unemployment by offering business tax credits for hiring residents of those zones, as well as block grants for business assistance, infrastructure investment and training programs.
• Studies generally do not find increasing employment in response to these policies. There is even less evidence of reduced poverty in these zones and there is also some evidence of rising housing prices which could hurt those who rent and live in those areas. Benefits to Enterprise Zones can come at the expense of economic performance in other areas.
• A different type of place-based policy is one that attempts to promote economic development through infrastructure investment, such as the Tennessee Valley Authority (TVA) that, beginning in 1933, provided electric generation to most of Tennessee and parts of Kentucky, Alabama and Mississippi, aiding industrialization and improving the quality of life in that region. More recently, there is evidence that university research facilities attract high-tech, innovative firms which, in turn, can form industry clusters that benefit from agglomeration economies. But these benefits may be quite localized and limited to technologically sophisticated firms.