Incentives and Firm Migration: An Interstate Comparison Approach

Abstract

The authors model how state business incentives influence interstate relocation patterns of manufacturers using a panel (2000-2011) of 32 states. The National Establishment Time Series database and the Panel Database on Incentives and Taxes are used to study relocation by manufacturing establishments based on differences between the origin and destination states. The authors find that traditional factors associated with business climate, such as taxation and subsidies, statistically influence manufacturing interstate relocation. Further analysis shows that policy changes (e.g., increasing incentives and reducing taxes) to induce manufacturers to relocate may need to be infeasibly large or used in combination to evoke an economically meaningful increase in relocations.