Strategic Interaction and Economic Development Incentives
Policy: Evidence from the U.S. States
Jia Wang
September, 2014
Abstract: This research considers strategic policy interaction in incentives use in the US. Using
the first national search engine for economic development incentives, my research is the first to
verify the existence and extent of policy interaction in incentives expenditures at the state level.
In addition, panel data techniques are used to generate analysis across states. I extend Byrne’s
(2005) spatial econometrics framework by incorporating both state and year dummies to mitigate
concerns associated with potential omitted variables bias. Preliminary results suggest that one
state’s incentives expenditure responds positively to its neighbor’s incentives expenditures: the
magnitude of response is around 2.7.
Keywords: economic development incentives, strategic interaction, state and local governments
JEL Codes: H71, H73
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Jia Wang: Department of Economics, University of Oklahoma, Norman, OK USA <[email protected]>