Boosting Economic Activity in Distressed Areas: Lessons from the Historically Underutilized Business Program

• In Event: Place-Based Investments and Local Policy Implementation

Abstract

Designing cost effective contracts that spur employment and capital investment in neighborhoods that typically receive scant private investment is one of the primary goals of policymakers. The Historically Underutilized Business Zone (HUBZone) program targets at least three percent—upwards of $10 billion—of federal contract dollars to businesses in underinvested areas yearly. Combining insights from both regression discontinuity and difference-in-differences, HUBZone eligible census tracts near the income threshold for the program experience a 0.3 percentage point gain to the share of the employed population relative to ineligible tracts near program thresholds. There are no differences in net migration after implementation of the program suggesting no differential migration into eligible tracts. In zip codes where establishments received grants, employment increases imprecisely at the zip-code level. Gains for employment and establishments are increasing in relation to the size of HUBZone award indicating a path by which to increase the efficacy of the program; however, many contracts are below $10,000 dollars which yield negligible returns to stated program goals.

Author

• Craig Sylvera, Federal Reserve Bank of Cleveland
  Presenting Author