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The Ineffectiveness of Location Incentive Programs

Evidence From Puerto Rico and Israel

Ben Gurion University of the Negev, dafnasch{at}som.bgu.ac.il

Joseph Pelzman

George Washington University and Ben Gurion University of the Negev

Michael Keren

Hebrew University of Jerusalem

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.

Key Words: location incentive • international investment • international business • regional development • economic development

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