Can incentives really create manufacturing jobs?
States frequently employ incentives like tax exemptions and loan guarantees to lure manufacturing plants from other states. This phenomenon—commonly known as smokestack chasing—is a mainstay of conventional economic development, but new evidence suggests that these programs do not effectively leverage the public funding to create new jobs. A recent article by oonsoo Lee of the Federal Reserve Bank of Cleveland suggests that public incentives to attract and retain industrial plants have only a marginal impact on the decisions made by manufacturing firms to relocate or shut down particular plants. Additionally, plant relocation itself has a small role to play in overall shifts in national manufacturing employment. Lee tracks the creation, closing and relocation of U.S. manufacturing firms between 1972 and 1992 and finds that most new manufacturing jobs result from non-relocated (de novo) new plant openings and the expansion of jobs at existing plants. Plant relocation plays a fairly mino
