Competition among state and local governments to lure businesses has attracted considerable interest from economists, as well as legislators and policy makers. This paper quantifies the role of plant relocations in the geographic redistribution of manufacturing employment and examines the effectiveness of state development policy. Only a few studies have looked at how manufacturing firms locate their production facilities geographically; they have used either small manufacturing samples or small geographic regions. This paper provides broader evidence of the impact of plant relocations using confidential establishment level data from the U.S. Census Longitudinal Research Database (LRD), covering the full population of manufacturing establishments in the United States over the period from 1972 to 1992. This paper finds a relatively small role for relocation in explaining the disparity of manufacturing employment growth rates across states. Moreover, it finds evidence of very weak effects of incentive programs on plant relocations.
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Do Tax Incentives Affect Local Economic Growth? What Mean Impacts Miss in the Analysis of Enterprise Zone Policies
September 2003
Working Paper Number:
CES-03-17
Geographically-targeted tax incentives remain popular initiatives in response to deteriorating economic conditions of urban and industrial areas. This paper exploits the exogenous variations of the U.S. state Enterprise Zone programs to estimate the impact of various incentive features on a number of dimensions of local economic growth. The econometric analysis uses plant level data to sort out growth outcomes into gross flows separately accounted for by new, existing, and vanishing businesses in the target areas. Results offer empirical evidence to support a number of specific policy recommendations and show that the impact of the incentives has more complex dynamics than those revealed by the null mean impact estimates obtained from analyzing net growth outcomes.
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THE IMPACT OF STATE URBAN ENTERPRISE ZONES ON BUSINESS OUTCOMES*
December 1998
Working Paper Number:
CES-98-20
Since the early 1980s, a vast majority of states have implemented enterprise zones. This paper examines the impact of zone programs in the urban areas of six states on business outcomes, the main target of zone incentives. The primary source of outcome data is the U.S. Bureau of Census' Longitudinal Research Database (LRD), which tracks manufacturing establishments over time. Matched sample and geographic comparison groups are created to measure of the impact of zone policy on employment, establishment, shipment, payroll, and capital spending outcomes. Consistent with previous research findings, the difference in difference estimates indicate that zones appears to have little impact on average. However, by exploiting the establishment-level data, the paper finds that zones have a positive impact on the outcomes of new establishments and a negative impact on the outcomes of previously existing establishments.
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Manufacturing Plant Location: Does State Pollution Regulation Matter?
July 1997
Working Paper Number:
CES-97-08
This paper tests whether differences across states in pollution regulation affect the location of manufacturing activity in the U.S. Plant-level data from the Census Bureau's Longitudinal Research Database is used to identify new plant births in each state over the 1963-1987 period. This is combined with several measures of state regulatory intensity, including business pollution abatement spending, regulatory enforcement activity, congressional pro-environment voting, and an index of state environmental laws. A significant connection is found: states with more stringent environmental regulation have fewer new manufacturing plants. These results persist across a variety of econometric specifications, and the strongest regulatory coefficients are similar in magnitude to thos4e on other factors expected to influence location, such as unionization rates. However, a subsample of high-pollution industries, which might have been expected to show much larger impacts, gets similar coefficients. This raises the possibility that differences between states other than environmental regulation might be influencing the results.
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How Does Labor Market Size Affect Firm Capital Structure? Evidence from Large Plant Openings
November 2015
Working Paper Number:
CES-15-38
I examine how the labor market in which firms operate affects their capital structure decisions. Using the US Census Bureau data, I exploit a large plant opening as an abrupt increase in the size of a local labor market. I find that a new plant opening leads to a 2.6% to 3.9% increase in the debt-to-capital ratio of existing firms in the 'winner' county relative to the 'runner-up' choice. This result is consistent with larger labor markets making a job loss less costly, which in turn reduces indirect costs of financial distress. Moreover, this spillover effect is larger for firms 1) that have a larger fraction of employees in the affected county, 2) that employ the same type of workers as the new plant, and 3) that have larger unexploited benefits of debt.
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Gross Job Flows and Firms
November 1999
Working Paper Number:
CES-99-16
This paper extends the work of Dunne, Roberts, and Samuelson (3) and Davis, Haltiwanger, and Schuh (2) on gross job flows among manufacturing plants. Gross job creation, destruction, and reallocation have been shown to be important in understanding the birth, growth, and death of plants, and the relation of plant life cycles to the business cycle. However, little is known about job flows between firms or how job flows among plants occur within firms (corporate restructuring). We use information on company organization from the Longitudinal Research database (LRD) to investigate the relationship between plant-level and firm-level job flows. We document: (1) the fraction of plant-level gross job flows occurring between firms; and (2) gross job flows by the extent of excess job reallocation occurring in firms.
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Combining Rules and Discretion in Economic Development Policy: Evidence on the Impacts of the California Competes Tax Credit
June 2021
Working Paper Number:
CES-21-13
We evaluate the effects of one of a new generation of economic development programs, the California Competes Tax Credit (CCTC), on local job creation. Incorporating perceived best practices from previous initiatives, the CCTC combines explicit eligibility thresholds with some discretion on the part of program officials to select tax credit recipients. The structure and implementation of the program facilitates rigorous evaluation. We exploit detailed data on accepted and rejected applicants to the CCTC, including information on scoring of applicants with regard to program goals and funding decisions, together with restricted access American Community Survey (ACS) data on local economic conditions. Using a difference-in-differences approach, we find that each CCTC-incentivized job in a census tract increases the number of individuals working in that tract by over two ' a significant local multiplier. We also explore the program's distributional implications and impacts by industry. We find that CCTC awards increase employment among workers residing in both high income and low income communities, and that the local multipliers are larger for non-manufacturing awards than for manufacturing awards.
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Personal Bankruptcy Law and Entrepreneurship
January 2017
Working Paper Number:
CES-17-42R
We study the effect of debtor protection on firm entry and exit dynamics. We find that more lenient personal bankruptcy laws lead to higher firm entry, especially in sectors with low entry barriers. We also find that debtor protection increases firm exit rates and that this effect is independent of firm age. Our results overall indicate that changes in debtor protection affect firm dynamics.
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The Disappearing IPO Puzzle: New Insights from Proprietary U.S. Census Data on Private Firms
June 2020
Working Paper Number:
CES-20-20
The U.S. equity markets have experienced a remarkable decline in IPOs since 2000, both in terms of smaller IPO volume and entrepreneurial firms' greater tendency to exit through acquisitions rather than IPOs. Using proprietary U.S. Census data on private firms, we conduct a comprehensive analysis of the above two notable trends and provide several new insights. First, we find that the dramatic reduction in U.S. IPOs is not due to a weaker economy that is unable to produce enough 'exit eligible' private firms: in fact, the average total factor productivity (TFP) of private firms is slightly higher post-2000 compared to pre-2000. Second, we do not find evidence supporting the conventional wisdom that the disappearing IPO puzzle is mainly driven by the decline in IPO propensity among small private firms. Third, we do not find a significant change in the characteristics of private firms exiting through acquisitions from pre- to post-2000. Fourth, the decline in IPO propensity persists even after we account for the changing characteristics of private firms over time. Fifth, we show that the difference in TFP between IPO firms and acquired firms (and between IPO firms and firms remaining private) went up considerably post-2000 compared to pre-2000. Finally, venture-capital-backed (VC-backed) IPO firms have significantly lower postexit long-term TFP than matched VC-backed private firms in the post-2000 era relative to the pre- 2000 era, while this pattern is absent among IPO and matched private firms without VC backing. Overall, our results strongly support the explanations based on standalone public firms' greater sensitivity to product market competition and entrepreneurial firms' access to more abundant private equity financing in the post-2000 era. We find mixed evidence regarding the explanations based on the smaller net financial benefits of being standalone public firms or the increased need for confidentiality after 2000.
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On the Lifecycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms
May 2008
Working Paper Number:
CES-08-13
We use a new data set that tracks U.S. firms from their birth over two decades to understand the life cycle dynamics and outcomes (both successes and failures) of VC- and non-VC financed firms. We first ask to what market-wide and firm-level characteristics venture capitalists respond in choosing to make their investments and how this differs for firms financed solely by non-VC sources of entrepreneurial capital. We then ask what are the eventual differences in outcomes for firms that receive VC financing relative to non-VC-financed firms. Our findings suggest that VCs follow public market signals similar to other investors and typically invest largely in young firms, with potential for large scale being an important criterion. The main way that VC financed firms differ from matched non-VC financed firms, is they demonstrate remarkably larger scale both for successful and failed firms, at every point of the firms' life cycle. They grow more rapidly, but we see little difference in profitability measures at times of exit. We further examine a number of hypotheses relating to VC-financed firms' failure. We find that VC-financed firms' cumulative failure rates are lower than non-VC-financed firms but the story is nuanced. VC appears initially 'patient' in that VC-financed firms are less likely to fail in the first five years but conditional on surviving past this point become more likely to fail relative to non-VC-financed firms. We perform a number of robustness checks and find that VC does not appear to have more stringent survival thresholds nor do VC-financed firm failures appear to be disguised as acquisitions nor do particular kinds of VC firms seem to be driving our results. Overall, our analysis supports the view that VC is 'patient' capital relative to other non-VC sources of entrepreneurial capital in the early part of firms' lifecycles and that an important criterion for receiving VC investment is potential for large scale, rather than level of profitability, prior to exit.
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Export Performance and State Industrial Growth
January 1990
Working Paper Number:
CES-90-03
This research examines whether state industrial growth over the past decade has occurred independently of changes in manufacturing exports and whether export employment growth responds to the same economic and locational forces as employment growth in domestic production. The empirical results indicate that employment and value added growth are not independent of export sales growth; however, a shift toward export markets is not strongly associated with higher manufacturing growth rates. Traditional factors account for a far greater proportion of the variation in domestic than export employment growth. The results suggest the need for additional research on the sources of state comparative advantage in export markets.
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