Business Climate Studies: A Critical Evaluation

Studies of business climate comparing states and communities have attracted considerable media attention in the past few years. This article examines the major issues surrounding these studies. The roots of contemporary business climate studies in earlier comparative cost analyses are discussed, including the important role of state and local taxation studies of the 1950s and 1960s. The most prominent contemporary business climate studies are identified and the methodological problems, especially those associated with the definition of business climate and with rankings, are criticized. Research on the relationship between business climate and state economic development is reviewed, and factors underlying the complexity of the relationship are discussed. The article concludes by noting some of the benefits to states that can result from methodologically rigorous and thoughtful comparisons of business climate factors when used in an appropriate context.