Can attracting a major industrial employer stimulate local entrepreneurship and economic growth? Governments frequently offer incentives to attract large firms, anticipating that their investments will create jobs and encourage the development of local supply chains. However, the extent to which these investments benefit smaller businesses and contribute to regional industry clusters remains an important consideration for economic development policy.
In “Does Goliath Help David? Anchor Firms and Startup Clusters,” published in the Journal of Urban Economics, Senior Consultant Rahul R. Gupta examines how the arrival of large industrial firms affects local business formation and employment. Drawing on US Census data and nearly 240 corporate site selection contests, Dr. Gupta compares counties selected for major industrial investments with runner-up locations to assess how these investments influence startups, existing businesses, and employment in economically linked industries.
The study finds that attracting a major industrial plant generates employment gains in its own and economically linked industries, with startups contributing substantially to job creation. However, newly established firms tend to be smaller and grow more slowly than comparable businesses in locations that did not secure the investment. The findings also reveal differences in workforce composition, with startups relying disproportionately on nonlocal workers, while established local businesses increase their reliance on the existing local workforce. The research offers insights into how large industrial investments shape regional supply chains and highlights important considerations for evaluating place-based business subsidies and industrial development policies.
Key Takeaways
- For an industrial plant with an average baseline size of 2,000 employees, attracting the major investment generates an estimated 2,515 net jobs in the plant’s industry and economically linked industries during the first four years following its announcement, with employment gains shifting to 1,622 in the subsequent four years.
- Startups account for the largest positive contribution to employment growth in related industries, although newly established firms tend to be smaller and grow more slowly than comparable businesses in runner-up locations.
- The employment effects of large industrial investments differ across firm types and workers. Startups rely disproportionately on nonlocal workers, while established local businesses increase their reliance on the existing local workforce. Neither group shows evidence of direct worker flows from the anchor firm’s corporate network.
How NERA Can Help
NERA provides rigorous economic analysis to help businesses, governments, and policymakers assess the effects of investment decisions, industrial policies, and market developments. Our experts combine economic theory, empirical research, and advanced analytical methods to evaluate how business activity and policy interventions influence employment, competition, and regional economic outcomes.
Our economists examine the effects of industrial investment and government policies on business formation, labor markets, and economic development. By evaluating changes in employment, firm behavior, and market structure, NERA helps clients understand the economic implications of major investments and assess the effectiveness of policy interventions. Our expertise in industrial organization, urban economics, and applied econometrics supports evidence-based analysis of complex economic questions.
