The Employment Impact of Motor Vehicle Assembly Plant Openings

Abstract

Local governments often offer motor vehicle assembly plants large subsidies to locate in their jurisdiction. A frequent justification is that an assembly plant will attract upstream parts suppliers to locate nearby and provide manufacturing jobs. Using propensity score matching, I find that an assembly plant brings an average of 500 additional parts supplier jobs beyond the employment gains the region would have experienced without the assembly plant. This increase is far less than predicted by the input–output models that state development agencies often employ.

Keywords: Regional development; Motor vehicle manufacturing; Agglomeration; Location choice

JEL Classification: R11, L62