Locality Ranking Systems : Methodological Considerations and Evidence from State Rankings

Several articles have ranked states and other localities based on their desirability as a location for doing business. The importance of properly conducting these studies can not be overstated. An inappropriate “bad” ranking can have a significant negative economic impact on an area. Similarly an inappropriate “positive” rating can lead businesspersons to establish businesses in suboptimal locations. Despite the importance of these rankings, surprisingly little research has been done on the issues involved in developing the rankings. In this paper the methodologies used by three studies are examined. The sensitivity of rankings to changes in methodology utilized is examined. A change in methodology is found to result in ranking change of up to twenty two places in a ranking of 50 items. The paper also demonstrates how changing methodologies affects the weightings of the variables in the index. Finally, the paper demonstrates how the inclusion of additional variables affects the rankings