Rethinking the Theory and Practice of Local Economic Development

Abstract:     
Scholars of urban law and policy tend to assume that local officials can exert some influence over city well-being. More specifically, the literature assumes that government policies - either at the federal, state, or local level - can influence local economic growth and decline, the most important determinant of a city’s health. This connection between policy and local economic outcomes implies a theory of how cities form and grow, however, and legal scholars have not adequately articulated such a theory. Without an account of how cities develop, we are left to assume that generally good policies will induce growth in the economy and generally bad policies will induce decline. But this is an assumption. If cities do not have much control over their economies than government policy is not particularly relevant to urban outcomes.

This Article first argues that we need a better (and more self-conscious) account of city formation and local economic growth. The Article then tests our intuitions about the relationship between policy and economic development by considering a number of explanations for why cities have resurged over the last fifteen to twenty years. Finally, the Article contrasts two economic development policies that have been adopted in New York City - one that preceded the current financial crisis and one that followed it. The first policy involved the granting of location subsidies to a large financial services employer. The second policy involves retraining financial service workers and subsidizing small, start-up ventures. Whether either approach works depends significantly on one’s theory about how city economic development happens. I contend that we do not know enough to be able to predict how one policy or another will affect city growth and decline.

Number of Pages in PDF File: 26

Keywords: cities, economic development, local government, location subsidies, new economic geography

Accepted Paper Series