Getting to the Bottom Line on Low-interest Loans to Business: An Evaluation of the Small Cities Economic Development Programme in Minnesota

Abstract

DEWAR M. E. and HAGENLOCKER B. (1996) Getting to the bottom line on low-interest loans to business: an evaluation of the Small Cities Economic Development Programme in Minnesota, Reg. Studies 30, 41-54. American local elected officials and planners commonly use low-interest loan programmes to attempt to promote economic growth and to encourage economic activity in distressed areas, but evaluations disagree about the programmes' effectiveness. This study's method reduces overestimation of economic growth (measured by job creation) and changes the estimation of costs to correct problems of past evaluations. When the method is applied to a Minnesota loan programme, the results show the programme created jobs at a wide range of costs, but many for less than $5,000 per job. Many of the jobs paid low wages, and the programme probably lowered earnings per job in the state. Further, the programme did redistribute some jobs to distressed areas, although it did not favour such areas. DEWAR M. E. et HAGENLOCKER B. (1996) Decouvrir la verite des prets commerciaux a taux faible: une evaluation du programme de developpement economique visant les petites villes situees dans le Minnesota, Reg. Studies 30, 41-54. Aux Etats-Unis les elus et les planificateurs locaux se servent generalement des programmes de prets a taux faible afin de tenter de promouvoir la croissance economique et de stimuler l'activite economique dans les zones defavorisees, toujours est-il que les evaluations ne concordent pas sur l'efficacite des programmes. La methode employee dans cette etude reduit la surestimation de la croissance economique (mesuree en termes de la creation d'emplois) et modifie l'estimation des couts pour corriger les problemes des evaluations anterieures. Une fois que la methode se voit appliquer au programme de prets dans le Minnesota, les resultats laissent voir que le programme a cree des emplois a salaires variables, dont beaucoup a moins de $5,000 par emploi. Beaucoup des emplois etaient faiblement remuneres et il est probable que le programme a fini par baisser les gains par emploi dans l'etat. En outre, le programme a reussi a redistribuer quelques emplois aux zones defavorisees bien qu'il n'ait pas favorise de telles zones. DEWAR M. E. und HAGENLOCKER B. (1996) Das Fazit von Niedrigzinsdarlehen an die Geschaftswelt: eine Einschatzung des Wirtschaftsentwicklungsprogramms in Kleinstădten Minnesotas, Reg. Studies 30, 41-54. Amerikanische, demokratisch gewahlte Ortsbehorden und Planer bedienen sich oft Programmen mit Niedrigzinzdarlehen, wenn sie versuchen, dem Wirtschaftswachstum zu grosserem Erfolg zu verhelfen, und wirtschaftliche Tatigkeit in Notstandsgebieten zu fordern, aber Einschatzungen der Programme sind sich uber ihre Wirksamkeit nicht einig. Diese Studie geht die Frage durch Herabsetzen der Uberschatzung des Wortschaftswachstums an, und andert die Schatzung der Kosten ab, um die Probleme fruherer Einschatzungen zu korrigieren. Bei Anwendung dieser Methode auf das Darlehensprogramm in Minnesota zeigen die Ergebnisse, das...

The Contribution of Small Business Loan Guarantees to Economic Development

“…11 In comparison, the rural Urban Development Action Grant (UDAG) program spent $5,546 per job, whereas other federal job creation activities cost upward of $13,000 to $19,000 per job (Howland & Miller, 1990). In a study of Small Cities Economic Development-subsidized loans in Minnesota, Dewar and Hagenlocker (1996) estimated that the program cost from $3,000 to $10,000 per job. Expensive incentive programs such as the BMW assembly plant in South Carolina cost $68,000 per job, and the Mercedes Benz plant recruited by Alabama in 1993 reportedly cost the state $150,000 to $200,000 in incentives for every job (see Schweke, Rist, & Dabson, 1994).…”

“…Increased and timely access to capital was the most consistent and pronounced of the recommendations of at least 12 state and regional economic development studies in California, and 15 of the top 60 recommendations adopted at the 1995 White House Conference on Small Business identified capital as a top priority (Koehler & Moller, 1998). However, explicit evaluations of public programs that aim to increase small business access to credit are sporadic and inadequate, typically using limited evaluation methodologies (Bartik, 1990(Bartik, , 1994Dewar & Hagenlocker, 1996;Giloth, 1992). The purpose of this study is to assess public benefit in terms of jobs and economic activity directly attributable to small business loan guarantees made by the California State Loan Guarantee Program (SLGP), which has been operating since 1968.…”

Small–Scale Entrepreneurship and Access to Capital in Peripheral Locations: An Empirical Analysis

“…Furthermore, all are concerned with the need for incorporating the opportunity costs of labor or capital for projects that may not seem viable when valued at market prices but are viable when alternative or shadow prices are considered. Thus, the impacts of job creation in distressed areas are examined through estimating the social costs of capital subsidies and charting their distribution (Dewar and Hagenlocker 1996). In other studies, employment impacts are translated into tax (Sridhar 1996) and income benefits (Felsenstein and Fleischer 2000) in distressed areas using a cost-benefit framework in which the opportunity cost of labor is considered using reservation wage estimates.…”

Income Inequality and Economic Development Incentives in US States: Robin Hood in Reverse?

“…Thus, adding jobs to the low end of the distribution can lead to increased inequality via a direct composition effect. Dewar and Hagenlocker (1996), for example, find that Minnesota's low-interest loan program mainly created low-wage positions which probably lowered overall earnings per job in the state. Lynch and Zax (2011) fail to find a long term effect on earnings attributable to enterprise zones programs in Colorado.…”