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Cities and Economic Development: Does the City Limits Story Still Apply?

Victoria Basolo University of California, Irvine

Chihyen Huang Feng Chia University

The dominant explanation for city policy choices over the past two decades has been the city limits story. This scenario represents the application of public choice theory to local policy making. Theorists argue that rational self-interest by cities compels local elected officials to favor developmental policies and compete with other jurisdictions. Inefficient economic development outcomes and evolving trends in the practice of eco- nomic development prompt a reevaluation of the city limits story as the primary expla- nation for economic development policies. This research investigates the influence of intercity competition and other factors on the support for economic development by cities. Results from regression analyses using data from a sample survey of U.S. local economic development professionals reveal virtually no support for the city limits story. Howeve , the population needs within cities, the support of elected officials, and the existence of formal economic development planning did influence support for eco- nomic development.

The city limits explanation for local economic development has dominated the literature for almost two decades (Wolman, 1996). This explanation offered by Paul Peterson (1981) asserted that local policy makers are single-minded in their policy objectives. They pursue developmental policies above all other interests, with economic strength as the sole objective. Peterson’s argument is based on an extension of public choice theory as presented by Tiebout (1956). From this perspective, resi- dents and businesses seek the best tax-to-services ratio and will move from one locality to another to attain it. In other words, individuals are self-interested and possess mobility as a strategy to ful- fill their preferences. City officials can discourage mobility of the population, specifically middle- to upper-income residents, by adopting policies that strengthen the local economy. Therefore, rational self-interest by cities compels local policy makers to favor economic development policies and leads to intercity competition for residents and businesses (Peterson, 1981; Schneider, 1989; Swanstrom, 1985; Tiebout, 1956).

The structural determinism of the city limits scenario has been criticized by many scholars for at least two reasons. First, it is argued that urban politics are complex and other factors besides eco- nomic self-interest help explain local policy decisions. For example, interest group influence, regime structures, and intergovernmental policies are thought to influence city policy making (Clark & Ferguson, 1983; Stone, 1989; Waste, 1989; Wong, 1990). Second, federal devolution and globalization have resulted in changes to local economic development practice. These two factors have expanded the field of economic development to include a wide variety of public, private, and nonprofit actors (Agranoff & McGuire, 1998; Clarke & Gaile, 1997). Therefore, economic devel- opment is no longer the exclusive jurisdiction of single-minded city officials. Furthermore, accord- ing to Peter Eisinger (1988), entrepreneurship and a focus on the development of local firms

ECONOMIC DEVELOPMENT QUARTERLY, Vol. 15 No. 4, November 2001 327-339 © 2001 Sage Publications

Victoria Basolo is an assistant professor in the Department of Urban and Regional Planning at the University of California, Irvine. Her research interests include local economic development and housing policy. She recently published articles in the Journal of Urban Affairs and Housing Policy Debate.

Chihyen Huang is an assistant professor in the Department of Land Economics at Feng Chia University in Taiwan. His research focuses on local economic development, public-private partnerships, and network analysis of development partnerships.


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