Wednesday, August 18, 2010

Economic Development Via Geographic Mobility

As Richard Herman will tell you, immigrants make great entrepreneurs. The benefits of attracting more immigrants to your community:

Studies by the Kauffman Foundation and others have documented the out-sized economic contributions made by immigrants who start neighborhood businesses, who invent something and launch high-tech companies, or who simply move into a struggling neighborhood and help boost the local tax revenue. Much has also been written about the intangibles that immigrants bring to struggling communities —– the hope, the drive, the sometimes-irrational optimism that can help raise a community off its knees.

I see a bigger picture. Migrants are catalysts of economic development. Discouraging geographic mobility acts as a drag on growth. That's why talent retention schemes are ultimately counterproductive (not to mention that they are relatively ineffective). Imagine spending millions of dollars to make your regional economy worse. That's the situation throughout the United States.

This finding is based on correlations, so we don’t know if home ownership is really causing the self-employed to stick around. A third factor, like the strength of the local job market might be keeping the self-employed in town and encouraging them to buy houses.

But the home ownership effect is big enough that policy makers should investigate it further. If the link between owning a house and sticking around were causal, policy makers could keep young self-employed people around by setting up programs to help them buy their own homes.

Given the recent tightening of mortgage loan standards, particularly on entrepreneurs with highly variable income, such programs would be particularly timely.

We should be thinking about ways to stimulate migration, not stifle it. Entrepreneurs your region attracts are better than the ones retained. Also, you'd be helping would-be entrepreneurs if you helped them to leave. There would be more innovation. Talent churn is the lifeblood of today's economy. Captive labor markets are inefficient and detrimental to development.

The exchange of ideas is still best done face-to-face. That means travelling/relocation. Places with the best churn will have the most growth.

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