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Geographic Scales and the Competition for Economic Growth

States, Subnational Governments, and Cities

University of Missouri–St. Louis

One of the key features of globalization is the increase in capital mobility, which propels national and subnational governments alike into a heightened competition for investment as more locations become feasible for any particular investment. This can be seen most clearly in the case of state and local governments in the United States, where the absence of controls on development incentives allowed a rapid increase in their level during the 1990s. State and local governments are caught in a Prisoners’ Dilemma that can only be solved at the federal level. In the absence of such intervention, many local organizations have tried to at least bring more transparency and accountability to the use of development incentives, with some success in moving the deals out of the back rooms and institutionalizing clawbacks of incentives where recipients fail to produce the promised investment.

Key Words: capital mobility • competitition for investment • economic development • foreign direct investment

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