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Mercatus Scholar Michael Farren Comments on Amazon HQ2 Announcement

Summary:
Amazon's decision to split HQ2 between Arlington County, Virginia and Long Island, New York adds weight to previous research that finds economic development subsidies don't work—that in the vast majority of cases, they don't actually change where a business decides to locate. Amazon's choice is unlikely to be premised on gaining the maximum subsidy from each location. Most recent mega-subsidies of this sort are at least partially structured as proportional to the number of new jobs and size of capital investment, meaning that there's less opportunity for Amazon to double-dip—but that doesn't mean they won't try! Instead, the decision to split HQ2 seems premised on being able to hire enough skilled workers to support Amazon's stratospheric growth into the future; Amazon wants to be able to

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Amazon's decision to split HQ2 between Arlington County, Virginia and Long Island, New York adds weight to previous research that finds economic development subsidies don't work—that in the vast majority of cases, they don't actually change where a business decides to locate. Amazon's choice is unlikely to be premised on gaining the maximum subsidy from each location. Most recent mega-subsidies of this sort are at least partially structured as proportional to the number of new jobs and size of capital investment, meaning that there's less opportunity for Amazon to double-dip—but that doesn't mean they won't try! Instead, the decision to split HQ2 seems premised on being able to hire enough skilled workers to support Amazon's stratospheric growth into the future; Amazon wants to be able to hire the best of the best from each location.

In my new policy brief, Amazon HQ2 is the Only Competition Where the Losers are Winners: Why Economic Development Subsidies Hurt More than They Help, my coauthor and I analyze the hidden costs of HQ2 proposals and the opportunity cost of subsidization. Splitting Amazon HQ2 into two is part of their business and political strategy:

The side benefit might be that Amazon gains more influence on Capitol Hill. The Crystal City location offers close access to Washington, DC policymakers, allowing Amazon greater ability to influence future laws and regulations that could force changes to its business practices or restrict it from entering new industries to compete with other established corporations. And the Long Island location adds more US Representatives and Senators who would have a vested interest in Amazon's future success.

Photo credit: Elvert Barnes/Flickr

Michael Farren
Michael is a Research Fellow in the Project for the Study of American Capitalism at the Mercatus Center. His research focuses on the effects of government granted privilege, specializing in labor, economic development, and transportation issues.

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