Area Based Initiatives

Area based initiatives can have positive impacts on employment and regional GDP, but displacement is a concern when it comes to Enterprise Zone policy.

Summary

The review considered more than 2,100 policy evaluations and evidence reviews from the UK and other OECD countries. It found 58 impact evaluations that met the Centre’s minimum standards.

What the Evidence Showed

EU Programmes

  • EU support has a positive impact on regional GDP per capita in a little under half of the evaluations that consider GDP effects.
  • Half of the studies which look at employment effects show a positive effect of EU support on employment.
  • The evidence on a range of other outcomes is mixed (with only one study per outcome).
  • Positive impact is bigger in relatively more developed regions.
  • Consistent with this, two out of three studies that consider the ‘dose’ (e.g. expenditure per capita) suggest an optimum ‘level’ of treatment.

Enterprise Zones

  • The preponderance of the evidence relates to US Enterprise Zones, US Empowerment Zones, and French Enterprise Zones.
  • A little over half the reviews find positive impacts on zone employment. Evidence of employment effects is weakest for US Enterprise Zones and better for US Empowerment Zones.
  • Most of the reviews that consider unemployment find positive effects.
  • Half of the studies that consider the impact on poverty report positive effects.
  • Half of the evaluations that consider wages report positive effects.
  • Most of the reviews that consider the number of businesses find positive effects.

Other ABIs

  • More than half of the studies that consider employment report positive effect.
  • Only three studies look at unemployment, with all three reporting positive effects.

Where there was lack of evidence

EU Programmes

  • We have no evidence on the extent to which the different components of spend change the effectiveness of support.

Enterprise Zones

  • A number of studies suggest that positive effects for Zones may be driven by displacement from nearby areas. However, we have little evidence on whether overall effects at the wider area level are positive, or whether displacement is the main effect of EZ-type schemes.
  • Very few studies look at differences in programme characteristics. As a result, we do not know how characteristics of programmes (e.g. selection, local employment conditions) change effectiveness, including the extent to which they may reduce displacement.
  • One study suggests that programmes with fewer target areas are more effective in attracting new jobs and business activity; and that employment growth in existing target businesses is promoted only if programme incentives are tied to hiring requirements. It would be good to know if these findings generalize.

Other ABIs

  • We have very few estimates for other outcomes of interest.
  • There is some evidence that targeting of schemes to firms that provide traded goods and services could make a difference in determining the extent of displacement, but this finding is based on only two evaluations of different schemes.

Lessons

  • In the UK, the devolution of business rates offers an opportunity for local authorities to make their own decisions about using EZ-type programmes to address local economic conditions. However, the relative power of this incentive (which represent a small proportion of business operating costs) should not be overestimated.

  • Decision makers need to take concerns over displacement in EZs seriously. If much of the growth within the zone comes at the expense of nearby local areas, then this will mean less (or even no) overall growth at the wider area level. However, even if displacement effects are strong, EZs may play a role in helping concentrate local employment from a number of dispersed sites.

  • There are implications for public service provision of more concentrated employment. For example, concentrating employment on a smaller number of sites may help reduce costs of infrastructure provision such as transport, broadband and other services to business.

  • Objectives of any area based policy must be very clearly defined, and the more specifically they can be targeted in terms of outcomes the better. The likely impacts of incentives across the targeted area, on adjacent areas, and over time, must be considered in the light of local conditions and objectives.

  • We must make progress in the evaluation of the UK-style EZs if we are to say with confidence that they are providing good value for money.

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