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Spotlight on Economics: Do Casinos Have a Positive Effect on Economic Growth?

The social costs of gambling remain an important issue in the casino debate.

By Siew Hoon Lim, Associate Professor

NDSU Agribusiness and Applied Economics Department

Casino legalization is controversial because, historically, gambling is perceived by some as immoral, foolish and irrational, and unlike other entertainment businesses, gambling creates social and economic costs that must be borne by gamblers and nongamblers.

But morality arguments and religious influences against casino gambling have dissipated in many communities through the years, and the general public in the U.S. has become increasingly receptive to casinos. According to the American Gambling Association (AGA), most American voters believe casinos help strengthen their communities and improve local economies.

But does casino development necessarily lead to economic growth? A large number of studies on this subject in the past three decades have reached mixed results.

First of all, whether casinos have a counter-cyclical effect on an economy remains ambiguous. Even if casinos may contribute economically, the AGA reckons that they are not immune to external macroeconomic conditions.

Economic uncertainty, consumer confidence and consumer spending also have considerable impacts on casino visitation and revenues, and consumers cut back on gambling during recessions. If the casino industry is not recession-proof, then the presence of casinos will contribute little to alleviate a state’s fiscal stress during a recession.

Additionally, casino expansion can reach a saturation point and result in intra-industry and interstate competitions that could lead to the disappearance of a casino’s positive economic impact, if any, on the local community in the long run.

In a recent study (http://onlinelibrary.wiley.com/doi/10.1111/grow.12182/abstract), my colleague Lei Zhang and I examined the relationship between casino establishments and economic growth of counties in the 48 contiguous U.S. states from 2003 to 2012. We examined the short-term (three-year) and long-term (10-year) county-level economic growth rates.

Specifically, we compared the effects on real per-capita personal income and job growth rates of the counties with and without casinos. We found that the effects of casinos on economic growth to be positive but relatively small.

Casino expansion was estimated to have increased the short-term per-capita income growth rate by 0.4 percentage point and the long-term per-capita income growth rate by 0.5 percentage point in 2003-2012. But after controlling for spatial or neighboring-county correlation effects, the effect of casinos on the long-term income growth disappeared.

On the job side, casino expansion was estimated to have increase the 10-year salary job growth rate by 0.71 percentage point during the 2003-2012 period, and its effect remained but only at 0.67 percentage point after controlling for inter-county spatial effects.

Our study did not examine the negative externalities of casinos. The negatives of casino gambling are well documented. Those negatives include not only behavioral problems associated with gambling, but also other individual, family, social and economic problems.

Gambling availability is associated with increased problem and pathological gambling behaviors among individuals in the casino neighborhood. Also, casinos lead to higher crime rates, but those rates decrease with distance, and the proximity of casino gambling is found to be associated with higher bankruptcy rates.

Policymakers and community leaders/developers must bear in mind that the social costs of gambling remain an important issue in the casino debate. If the economic benefits are short term and small, but the harm to society is long term and potentially irreversible, rather than focusing on the temporary gains, one must weigh the benefits and costs in a comprehensive, holistic manner.

NDSU Agriculture Communication - Sept. 12, 2017

Source:Siew Lim, 701-231-8819, siew.lim@ndsu.edu
Editor:Ellen Crawford, 701-231-5391, ellen.crawford@ndsu.edu
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