The Political Economy of Gubernatorial Smokestack Chasing: Bad Policy and Bad Politics?

Why do states persist in offering large financial incentives to induce firms to relocate to or expand in the state, a practice commonly derided as “smokestack chasing?” The conventional wisdom is that while these incentives have little effect on firms' business decisions in the long term, they are a good political strategy for governors seeking to improve economic conditions and political support in the short term. I test these hypotheses by examining the economic and electoral impact of industrial recruitment policies in Wisconsin, Virginia, Michigan, North Carolina, Maryland, Indiana, and Kentucky. I find, first, that these policies pay immediate dividends for governors by increasing county-level job growth and per capita income prior to the next election. Second, governors recruit firms strategically to relocate to counties that opposed them in the previous election. But, third, this industrial recruitment does not increase electoral support for the governor. In fact, the more success a governor has in...