Intel has unveiled an ambitious $28 billion investment plan in New Albany, a Columbus suburb, to construct two new leading-edge chip factories. To support this initiative, federal, state, and local governments have committed to substantial investments in infrastructure and significant industrial incentives. For instance, the Ohio Department of Transportation has announced a $99 million investment to improve transportation in the area surrounding Intel’s future campus (Ohio Governor's Office, 2023). The community's response to Intel's initiative has been mixed, reflecting diverse opinions on its potential impact.
To grasp the impacts, it is important to understand both the areas of concern and the possible opportunities for the region by drawing on insights from existing economic research. Meanwhile, information and data compiled from a similar effort by Intel in Chandler, Arizona, serves as a primary resource for developing a foundational understanding of the benefits and challenges associated with Intel’s investment in the Columbus, Ohio, metropolitan area.
WHAT ARE THE BENEFITS AND COSTS OF INTEL'S ENTRY INTO OHIO'S LOCAL ECONOMY?
Job creation, agglomeration (clustering of firms and workers) to enhance productivity and drive economic development, and increased housing demands along with associated infrastructure needs are all topics where lessons learned from Chandler’s experience can provide insights to mitigate the challenges and enhance the opportunities in the Columbus metropolitan region.
WHO STANDS TO GAIN OR LOSE FROM THIS DEVELOPMENT?
An examination of the potential for job creation and possible fluctuations in housing costs is necessary to determine if these factors will be unevenly distributed. Understanding the benefits to high-skilled workers and homeowners versus low-skilled workers and renters can better prepare the central Ohio region to plan for success and reduce challenges associated with Intel’s entry into the region.
HOW CAN WE MITIGATE THE COSTS AND MAXIMIZE THE BENEFITS?
The supply conditions of land and housing markets, skilled workers, and higher education institutions and technology firms are all factors that can play a role in planning for a successful collaboration between Intel and the Columbus metropolitan area. Understanding the interplay of all factors and how to best position them based on Chandler’s experience can provide critical insights into how to mitigate costs and maximize benefits.
Examining the experience of Chandler, Arizona, a Phoenix suburb where Intel began investing in the late 1970s, serves as a useful comparison to Intel’s effort in Columbus, Ohio. In 2017, Intel invested $7 billion to complete a factory in Chandler that had originally begun construction in 2011. This was followed by a $20 billion expansion by building two new fabrication facilities in 2021. Phoenix and Columbus share several similarities:
- a business-friendly environment
- access to a skilled workforce
- convenient transportation
- low costs of living and production
This article provides a concise summary of recent economic research evaluating policies similar to Intel's entry, combined with insights from Phoenix, another beneficiary of Intel's investments.
An Overview of Place-Based Policies
Intel's entry into central Ohio represents more than just the arrival of a major corporation; it signifies a collaborative effort between the private and public sectors to bolster the local economy. The government has pledged substantial fiscal investments as part of this initiative. Economists refer to such policy efforts as place-based policies, which are strategies specifically designed to target and stimulate economic growth in particular geographic areas. These policies are employed worldwide to enhance specific local economies by addressing the needs and opportunities of those regions through incentives, subsidies, infrastructure development, and other tailored economic interventions.
Prominent examples of place-based policies have been implemented in the United States:
- Million Dollar Plants (MDPs). These policies attract manufacturing plants by offering financial incentives to stimulate local economic growth.
- Empowerment Zones. These zones provide tax incentives and grants aimed at revitalizing distressed communities.
- Opportunity Zones. These zones offer tax benefits for investments in economically challenged areas to encourage development.
- The Tennessee Valley Authority (TVA). This initiative modernized the Tennessee Valley through infrastructure projects, significantly boosting regional economic growth.
The effectiveness of place-based policies is debated among economists and policymakers. While these policies aim to create jobs and stimulate local economies, evidence of their success is mixed. Policymakers hope these interventions will lead to sustained growth, but as discussed later in this article, research often shows they fail to achieve the desired outcomes. Even their positive effects are sometimes temporary. Furthermore, concerns arise about how their economic impacts are distributed throughout the population and other broader implications. Place-based policies may benefit certain groups or regions while disadvantaging others, effectively promoting one area's growth at another's expense. This redistribution can exacerbate inequalities and raise questions about the overall fairness and efficacy of place-based policies (Neumark & Simpson, 2015a).
Will Intel's investment, combined with supporting local investments, provide a significant boost to the Ohio economy? To answer this, we can draw insights from economic research on place-based policies, considering the localized nature of these economic shocks.
Do Place-Based Policies Create Jobs and Promote Growth?
Evidence regarding the success of place-based policies is mixed. Most research on empowerment zones indicates they do not significantly create jobs, reduce poverty, or bolster the local economy, except for federal programs that provide substantial block grants (Neumark & Simpson, 2015a).
The MDP initiative, which is similar to a policy provided to Intel's entry, appears more successful than empowerment zones. Greenstone et al. (2010) found that the productivity of incumbent firms in counties with MDP entries increased by 12% over five years. However, another notable program, opportunity zones, has not spurred significant private investment beyond multifamily housing developments (Feldman & Corinth, 2023).
The effectiveness of such policies largely hinges on the local economic environment and the design of the policies to meet local needs. Neumark & Simpson (2015b) reviewed studies on place-based policies in the United States and Europe, identifying three generally successful types:
- Discretionary policies can precisely target recipients and monitor outcomes effectively.
- Infrastructure investments, as seen in the TVA program and European Union Structural Funds, can boost regional productivity and serve as redistributive tools.
- Investments in higher education institutions generate localized productivity spillovers, particularly in tech-linked industries, by attracting high-tech firms and fostering industry clusters.
Intel brings substantial opportunities to Chandler, Arizona. The company's investment in Chandler has now reached $52 billion, including the two fabs currently under construction. As Chandler's largest employer, Intel is expected to have a workforce of 15,000 once these factories are completed in 2024. Additionally, the city reports that Intel's operations indirectly support employment for up to 55,000 workers (Columbus Dispatch, 2022).
Alongside other major employers like Wells Fargo and Bank of America, Intel has significantly contributed to Chandler's economic landscape. From 2004 to 2013, Chandler's average annual job growth rate was approximately 6.8%—nearly double the state average of 3.8%. Within the greater Phoenix-Mesa-Chandler metropolitan area, Chandler has demonstrated superior job growth (Figure 1, Panel A). The labor force expanded from 50,000 in 1990 to over 150,000 by 2020 (Figure 1, Panel C), and the average household income rose from $72,000 in 2012 to nearly $100,000 in 2020 (Figure 1, Panel D).
Not only has job creation increased, but economic opportunity and mobility have also improved in Chandler. Economists measure economic opportunity at the neighborhood level by assessing the likelihood of children earning more than their parents (Chetty et al., 2020). A higher proportion of workers earning more than their parents indicates better economic mobility within the area. Panel B of Figure 1 highlights that children from low-income families (at the 25th percentile) who grew up in Chandler had higher average household incomes in their mid-30s in 2014–2015 compared to their peers in the same metropolitan statistical area (MSA). Notably, Intel began its initial investment in Chandler around the time these children were born. Thus, Chandler appears to offer promising prospects for economic mobility and opportunities during Intel's investment period.
It is likely that Intel will bring jobs and economic opportunities to Ohio, similar to what Arizona experienced 40 years ago. Intel's entry aligns with key components of successful place-based policies—boosting local employment and the economy—as supported by economic literature. Central Ohio already has a strong industrial foundation, with companies such as General Motors, Ford, and Honda contributing to growth in the Columbus area. Additionally, tech giants like Amazon, Google, and Facebook have established data centers in New Albany, near the future Intel fabs (Capital Frontiers, 2023). Intel's access to higher education institutions, such as The Ohio State University, Ohio University, and the University of Cincinnati, combined with its substantial research-and-development investment, promises significant potential for positive economic spillovers. Furthermore, robust infrastructure support from the local government is expected to further enhance the local economy.
Agglomeration and Firm Growth
One key justification for place-based policies is the concept of agglomeration, a cornerstone of regional and urban economics. Agglomeration refers to the increased productivity that occurs when people and firms cluster together. This clustering facilitates labor pooling, allowing firms to find skilled workers more easily and workers to find jobs that match their skills. It also enables input sharing, where firms reduce costs and improve efficiencies by sharing suppliers and customers, and fosters knowledge spillovers, where proximity encourages the exchange of ideas and innovations. Although initial investments in a location can be costly, they can trigger a "big push" for the economy, leading to a self-sustaining cycle of development even after policy incentives are removed (Rothenberg et al., 2024).
The evidence of agglomeration in Chandler, Arizona, is abundant. First of all, Intel's arrival in Chandler has been a transformative force, fostering a dynamic ecosystem of technological innovation. Its presence has not only spurred the establishment of several leading semiconductor firms but also has ignited a surge in startups specializing in hardware and software development, such as Microchip Technology, Texas Instruments, Plexus, and Benchmark Electronics. Secondly, this influx of industry players draws talent from across the nation to Chandler's burgeoning tech landscape. Recent census data underscores this growth, revealing a significant uptick in Chandler's population over the past decades, soaring from 236,000 in 2010 to 281,000 in 2022, with a notable rise from 57,000 to 83,000 in individuals holding bachelor's degrees or higher. This demographic shift underscores Chandler's appeal as a magnet for skilled professionals within the vibrant tech community. Moreover, the symbiotic relationships formed among these tech firms have spurred innovation across various sectors, such as autonomous vehicles, fostering a self-reinforcing cycle of development that positions Chandler as a thriving hub of technological advancement (City of Chandler, 2024).
Satellite data provides compelling evidence of the evolving landscape in the Phoenix-Mesa-Chandler metro area from 1980 to 2020 (Figure 2, Panels A and B). While the trajectory suggests a sprawling growth pattern, a closer examination reveals a distinct clustering of development within Chandler's district boundaries, particularly in western Chandler, where the Intel campus is located (Figure 2, Panels C and D). This concentrated growth, contrary to notions of limited expansion equating to underdevelopment, signifies a flourishing economy. Notably, there's a discernible uptick in the intensity of development within this area, evident in the shading on Figure 2, where lighter colors denote higher built-up intensity, underscoring the robust economic activities within Chandler. In essence, these spatial patterns highlight the trend of economic activities, firms, and workers gravitating toward Chandler, indicative of an emerging agglomeration economy.
Several common features between Columbus and Phoenix suggest that strong agglomeration effects could emerge in Ohio. Both regions offer abundant land and a business-friendly environment, attracting firms from diverse sectors. Columbus, however, benefits from ample water resources, which Arizona lacks. Both areas have robust industrial foundations, with existing firms poised to serve as suppliers and buyers for Intel's materials and products. Future infrastructure investments will further support new and existing businesses, enhancing their operations. Additionally, well-developed transportation networks facilitate the trade of goods and worker commutes. Proximity to higher education institutions in both regions ensures easy access to a skilled workforce and stimulates knowledge spillovers, significantly benefiting a high-tech company like Intel.
Congestion
While the potential for job creation and firm growth with Intel's entry is significant, it is crucial to consider the impact on residents' quality of life, which is largely determined by income and cost of living. Residents, after all, are the ones who pay the taxes that finance the massive incentives promoting Intel's growth. As Intel and its suppliers bring in more workers, the increased demand for housing could strain the market, particularly given existing constraints on housing and land supply. The literature consistently finds evidence of housing price increases due to place-based policies. Qian and Tan (2021) examined 391 high-skilled firm entries in the United States from 1990 to 2010, finding that house prices increased within a 10-minute driving distance after firm entry, with more pronounced effects in cities with rugged geography and stringent land use regulations. Furthermore, living expenses not associated with housing prices are likely to rise. A recent study by Bhardwaj et al. (2021) found that counties winning MDPs experienced a 2.4% annual increase in retail prices following the introduction of a new high-skilled firm.
Let us delve deeper into the dynamics of the housing market in Arizona subsequent to Intel's entry. Given the prevalence of commuting to work, our focus extends to the broader Phoenix-Mesa-Chandler MSA. The resident population in this area has grown from 3.28 million in 2000 to 5.07 million in 2023 (FRED Economic Data, 2024a). Despite this population surge, housing prices in Chandler have not seen a dramatic increase. In fact, housing prices in this MSA have been increasing at a rate close to the national average (Panel A, Figure 3). This stability can be attributed to the region's limited regulations on residential construction, resulting in a highly elastic housing supply. While there has been a surge in housing demand, significant construction has accommodated it. From 2000 to 2023, over 823,000 new private-housing building permits have been authorized in the Phoenix-Mesa-Chandler MSA (FRED Economic Data, 2024b). In Chandler alone, more than 10,000 housing units have been built since 1970, with some new housing stock still unoccupied, indicating a lower impact to available housing (NHGIS, 2023).
The extent to which excitement for Intel translates into a surging housing market depends on how effectively the housing supply can keep pace with demand. Economists use housing supply elasticity to measure how responsive the housing supply is to changes in the economic environment. When housing supply elasticity is high, the market can swiftly increase the number of homes available when demand increases, resulting in more stable and affordable housing prices. Factors such as zoning laws, geographic constraints, land availability, construction costs, and the efficiency of the approval process can influence housing supply elasticity.
A widely used measure of local land supply elasticity relevant to housing supply elasticity is the Wharton Residential Land Use Regulatory Index (WRLURI). This index aggregates data from a nationwide survey of residential land use regulations to measure the stringency of local regulatory environments of 44 core-based statistical areas (CBSAs). According to the WRLURI, the Phoenix-Mesa-Scottsdale area is one of the most restricted housing markets, as evidenced by a 0.55 score on the index, while Columbus, Ohio, is around the national average with an index of 0.24 (Gyourko et al., 2021). This suggests that Columbus has a more elastic land market than Phoenix, making it easier to supply land and potentially new housing stock in Columbus, thereby maintaining more affordable housing prices. This is reflected in the relatively stable housing price trends in Columbus over the past few decades (see the purple line in Figure 3).
However, should we expect the central Ohio housing market to keep pace with demand over the long term due to Intel's arrival, especially considering that the market responded almost immediately after the January 2022 announcement of Intel (Crisp, 2024)? While the market may absorb the impact in the long run, a short-term spike in housing prices is likely as new housing construction takes time to meet increased demand. We have seen a surge in new housing stock after 2000 in both Chandler and New Albany, as reflected in the younger age distribution of the housing stock (Figure 4, Panels A and B). However, when considering the broader local housing market, nearby areas of New Albany have a significantly older housing stock compared to those near Chandler, as shown in the age composition of existing housing in nearby cities (Figure 3, Panels C and D). Most housing in cities near Chandler was built after 2000, following Intel's earlier investment, while the majority of housing in cities near New Albany was constructed before 1990. Concerns about the existing housing shortage from years of underbuilding, combined with the influx of new Intel employees and associated service workers, are expected to exacerbate housing affordability issues and increase property values and rental prices (Associated Press & Spectrum News Staff, 2022; Crawford, 2023). The impact in Ohio will hinge on the short-term and long-term supply conditions of the land and housing market.
Potential Winners and Losers
The entry of Intel into a region, like other place-based policies, raises questions about who reaps the benefits. While the creation of substantial high-tech jobs is evident, the distribution of these benefits among different segments of the population remains a concern. Will everyone, beyond high-skilled workers, benefit? Moreover, with the potential increase in housing prices, there's a valid question about whether the benefits might unintentionally favor certain groups.
Qian and Tan (2021) shed light on this issue, highlighting that high-skilled workers tend to secure more sustainable job opportunities and experience increased wages. As housing prices rise, homeowners enjoy capital gains from the appreciation of their homes. However, the scenario isn't as favorable for low-skilled renters, particularly those residing near the entry sites. They bear the brunt of increased living costs, facing higher rents without a corresponding increase in income. Moreover, concerns about potential displacement and gentrification arise.
Bhardwaj et al. (2021) find similar results indicating that in counties where million-dollar plants (MDPs) establish a presence, only skilled workers experience an increase in wages. They also offer further insights on the underlying mechanisms, finding that skilled, high-income workers allocate less time to shopping, prioritizing work over price comparisons. However, less-skilled workers do not enjoy the same benefits from the entry of MDPs. In essence, the entry of large firms may not necessarily translate into benefits for individuals unable to integrate their skills into the workforce.
Intel's establishment in Chandler has created many high-tech jobs, significantly benefiting high-skilled workers in the region. Over the years, Chandler has experienced a demographic shift toward a more educated population. The proportion of residents ages 25 and older with more than a college degree rose dramatically from less than 10% in 1970 to over 32% in 2000 (Figure 5, Panel A). Among the Phoenix metro area, Chandler ranks highly in terms of college-educated residents (Figure 5, Panel B). Although not exceptional compared to the national average, the housing price index in Chandler has increased more than tenfold from 1977 to 2024 (Figure 3). This appreciation benefits homeowners through rising property values. However, low-skilled renters face less favorable conditions. Moreover, the expansion has led to significant infrastructure changes and increased traffic, impacting nearby neighborhoods, and potentially contributing to the displacement of long-term residents (Brooks, 2023).
Intel's presence in Chandler led to pressure on the housing market and significant demographic shifts. Central Ohio is likely to face similar challenges. Homeowners might benefit from rising property values, but low-income renters could struggle with higher living costs and potential displacement. Infrastructure and traffic issues may also arise, necessitating careful urban planning to mitigate adverse effects.
Conclusion
Intel's significant investment in central Ohio, while reminiscent of its earlier projects in Chandler, Arizona, promises to bring both opportunities and challenges to the local economy. The evidence from Chandler suggests that such investments can lead to substantial job creation, economic growth, and improved economic mobility. However, the mixed success of place-based policies and the experiences of Chandler also highlight potential downsides, including increased living costs, housing market pressures, and potential displacement of low-income residents.
The literature on place-based policies provides a nuanced perspective on the potential impacts of such large-scale investments. While initiatives like the MDPs have shown some success in increasing productivity and job growth, other programs like empowerment zones and opportunity zones have had mixed results. The effectiveness of these policies often hinges on the local economic environment and the design of the interventions, with targeted discretionary policies, infrastructure investments, and support for higher education institutions showing the most promise.
For Ohio to maximize the benefits of Intel's entry, it is crucial to learn from Chandler's experience. Effective policy design should focus on ensuring the local infrastructure can support the influx of new workers and businesses, promote affordable housing development to mitigate potential price surges, and implement measures to enhance economic opportunities for both high-skilled and low-skilled workers.
Furthermore, leveraging the existing industrial base and higher education institutions in Ohio can foster positive spillovers and sustained economic growth. Policymakers should strive to balance the benefits and costs of such large-scale investments to ensure equitable outcomes for all residents, thereby enhancing the overall impact on the local economy.
Ultimately, while Intel's investment represents a significant economic opportunity for central Ohio, careful planning and strategic policy interventions are essential to harness its full potential and address the associated challenges.
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