Abstract
Purpose. To analyze the relationship between economic development incentives and economic growth in the counties of Riverside and San Bernardino, California. Theoretical framework. The theoretical framework of this study is based on two economic theories of stimulation and displacement. Stimulation proposes that any positive level of an incentive program can stimulate net new economic activity. Local economic development programs could affect location choice so as to increase the benefits from a given level of economic activity. At opposition to the stimulation theory, current retail strategies produce the effects of displacement theory, which incentives inhibit the economic activity that would have matured in its absence. That displacement presents an interesting paradox: Why should companies new to a community be compensated in a manner that existing companies that have been contributing to their community not be compensated? Methodology. Descriptive research using a case study involving twenty-four cities in Riverside and San Bernardino Counties, California. A structured survey questionnaire was administered to fifty economic development managers to determine which incentives were available in attracting businesses to these areas. Cross tabulation, Mann-Whitney U, and Wilcoxon W tests were performed to measure the relationship between economic development incentives and economic growth. Findings. Economic development incentives had minimal impact on economic growth in the counties analyzed. In both counties, very little evaluation of the impact of economic development projects is done either before or after an incentive project is funded. A highly educated workforce, high paying jobs, good transportation systems, availability of land, and low taxes seem to be the greatest contributors to economic growth. Conclusions and recommendations. Economic development officials should take an immediate and objective evaluation of their current situation and incentive programs. Incentives should be used only to accomplish clearly defined goals based on an overall economic development strategy.