Date of Award

12-2005

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Dr. Wei-Chiao Huang

Second Advisor

Dr. Timothy Bartik

Third Advisor

Dr. Matthew Higgins

Abstract

This dissertation analyzes whether the Renaissance Zone (RZ) programs in the state of Michigan are effective in helping distressed urban areas. The unique ES202 data permits us to use both establishment level data and aggregated zip level data to examine the impact of RZ programs on the establishment number and the firms' employment, real wage, and life duration. Based upon the presumption that different firms are sensitive to the tax incentives in different ways, this study examines the impact on all firms, on new firms, dead firms, and existing firms, on manufacturing and service firms, and on large and small firms.

Selection biases on observed and unobserved variables usually arise from compiling data to conduct program evaluation when comparing the business outcomes of zone areas due to RZ programs to those of non-zone areas or comparison areas without RZ programs. To correct for the observed selection bias and to also test if the findings are robust and consistent with different specification of the control groups, this study chooses two comparison groups, the2 nd round RZ and the propensity score picked group. To remove the possible unobserved selection bias, I apply three model specifications to the estimationof employment and real wage effects on unbalanced panel data: (1) fixed effect model, (2) random growth rate model, and (3) lagged dependent variable model, and Difference-in-Difference tests to the estimation of duration effect.

I find that RZ programs cause fewer firms to start up, and fewer firms to close down in zone areas than those firms in non-zone areas at the same time. I also find that the Renaissance Zone programs raise employment by around 9% for service firms and around 3.8% for small firms. For manufacturing firms and large firms, the employment effect of RZ programs is not significant. Contrary to its mostly positive employment effect, the RZ program appears to cause the real wage to drop by 10.8% for manufacturing firms, by 11.7% for service firms, and 6.5% for small firms. The real wage effect is not significant for all firms taken together and for large firms. It is also found that employment and real wage effects change over time for manufacturing, service, large and small firms. Finally, based upon Cox proportional hazard function estimations and Difference-in-Difference tests, it appears that RZ programs do not help firms to last longer.

Access Setting

Dissertation-Open Access

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