Lessons in Economic Development

I recently wrote an article on analytical tools useful for economic development.  The article discussed tools such as Location Quotient, fiscal impact and Shift-Share analyses and their importance to economic development.  The complete article can be found at Know it to grow it: The analytical tools of economic development.

The article also included a number of suggestions for economic development plans, lessons I learned in performing and reviewing these analyses.  Though they include examples from the State of Nevada, these lessons are applicable to any location:

Whenever possible, use local resources-Paying a consulting company from out of the region or even out-of-state to conduct an economic development analysis defeats the point of economic development.  The money paid to these consultants goes outside of the region, creating or supporting no local jobs.  While there may have been a lack of competent local consultants in the past; there are now a number of local resources.  Not only do local firms help keep money in the region, they are familiar with the local area, providing a level of expertise not available from non-local firms.

Focus on a smaller area-Nevada’s economy is diverse, with large differences not only from North to South, but also between counties in the same region.  An economic development plan for the entire state is likely to focus mainly on the competitive advantages of Clark County due to its size compared to the rest of the State.  Similarly, focusing on the entire Northern Nevada region may overlook the competitive advantages of smaller counties.  For example, Washoe County, in 2011, had approximately 180,000 employees and its highest employment concentration was on Casino Hotels (33 times more employees in this industry than the national average) and Miscellaneous Manufacturing (with 30 times more employees than national).  Douglas County, its neighbor to the south, had 17,200 employees in 2011, with concentrations in Coffee and Tea Manufacturing (104 times the national average) and Instruments and Related Product Manufacturing (100 times the national average).  Lander County to the west had 3,200 employees but almost 5,000 times the national average in Gold Ore Mining and almost 2,000 times the national average in Chemical and Fertilizer Mineral Mining.  These numbers differ considerably in total employment and comparative advantage, which may not be shown if data for these counties were combined.

The more detailed, the better-Industries are defined using the North American Industry Classification System (NAICS).  NAICS codes are available as 2-digit general codes and up to a 6-digit detailed industry code.  Using the detailed codes to analyze industry data provides a better picture of the changes within each major industry sector.  For example, using the 6-digit NAICS code analysis, Washoe County has the highest location quotient in the NAICS code 721120-Casino Hotels, while using the 2-digit code, Washoe County has the highest concentration in NAICS code 49-Transportation and Warehousing.  Using different codes results in different results and whenever possible a more detailed analysis should be conducted.  One must be careful, however, when comparing detailed NAICS data over periods of time since NAICS codes were restructured a number of times in the past, with the latest change in 2012.  It is important that data for each industry is compared to the corresponding industry (not NAICS code if it changed).