The Ineffectiveness of Location Incentive Programs

Abstract

Many countries use location incentives programs to attract investment into a recipient country as a whole or to priority regions, with the goal of promoting growth. The authors focus on two cases, both involving location-related incentives programs, one to shift resources to disadvantaged regions within a country (Israel) and the other to shift investment flows from the United States to a possession (Puerto Rico). In both cases, the programs led to increased employment in the short run but did not alter the fundamental economic problems of these areas. The authors show that there is a governmental failure in their operation of location-related incentives programs and that these governments find it difficult to discontinue incentive programs once they have been introduced.