Is Economic Freedom Associated with Urban Development?

Abstract

In this paper, I present a framework for analyzing city competition that clarifies the different dimensions along which cities can compete with one another for people and firms. I contend that current urban development strategies are largely based on a “hydraulic” approach to development and discuss an alternative that focuses on policies and the amount of local government impediments to urban development that exist across cities. Using a sample of 381 metropolitan statistical areas (MSAs) and an MSA economic freedom index from an article by economist and policy analyst Dean Stansel, I find that MSAs with fewer government impediments experienced more per capita income growth from 2002 to 2005 and from 2002 to 2011. I also find that MSAs with more tax freedom experienced more population growth from 2002 to 2011 and from 2002 to 2015. These findings are evidence that government impediments to economic activity can affect local intensive and extensive economic growth, and they are consistent with several country- and state-level studies.

Keywords: Cities, Urban Development, Public Economics, Tiebout, Competition, Economic Growth

JEL Classification: R11, H7, H73