Evaluating the Impacts of Local Economic Development Policies on Local Economic Outcomes: What Has Been Done and What Is Doable?

This paper argues that more rigorous evaluations of local economic development policies are feasible. Programs that aid selected small firms can be rigorously evaluated using an experimental approach, without excluding firms from assistance, by randomly assigning some firms to receive more intense marketing efforts by the program. Programs that aid distressed local areas can be rigorously evaluated by random assignment of the program among eligible distressed areas. If an experiment cannot be done, a variety of statistical approaches can be used to compare firms or areas that use the program with comparison groups of firms or areas that do not use the program. These statistical analyses should be supplemented with surveys and focus groups with businesses that use the program, which give some insight into why the program works or doesn't work. Evaluations should go beyond the effects of programs on business growth to effects on local fiscal health and the earnings of the unemployed. Evaluations using rigorous approaches suggest that programs providing information services to small manufacturers are frequently effective. Programs targeting distressed areas are ineffective unless great resources are used over a lengthy period. ii FOREWORD This paper argues that local economic development policies can and should be more rigorously evaluated. The evaluation should attempt to determine the impact of the policy on local economic outcomes—that is, how local economic outcomes differ compared to what would have happened " but for " the policies. Programs that provide services or financial assistance to small and medium-sized enterprises (SMEs) can be rigorously evaluated using experimental methods. In such a random experiment, the program would be selectively marketed to randomly chosen SMEs, the " treatment " group, while a control group of SMEs would still be eligible for services but would not receive special marketing efforts. The policy's impact on SMEs can be evaluated by comparing economic outcomes and program usage in the treatment and control groups. Programs that target distressed local areas for assistance, such as enterprise zones, can also be rigorously evaluated using experimental methods. Areas designated for assistance can be randomly chosen among eligible distressed areas, and the scarce available resources can be more concentrated on these randomly chosen " treatment " areas. The policy's impact on designated areas can be evaluated by comparing economic outcomes in these treatment areas to the eligible distressed areas that were not randomly chosen for assistance. If experimental data are unavailable or …