Rankings of State Business Climates: An Evaluation of their Usefulness in Forecasting

Abstract

Three of the most prominent annual state business climate rankings (Grant-Thornton, Inc. magazine, and Corporation for Enterprise Development) are described with careful attention paid to the elements that go into the rankings and their weights. Then rankings from the 1981 Grant Thornton and 1982 Inc. studies are correlated with subsequent economic performance of states. The results show that what little predictive power the business climate rankings have can be explained by elements in the rankings that measure recent economic performance in the states. In fact, the measures of recent economic performance that are used in constructing the business climate rankings generally turn out to be better predictors of subsequent economic performance than the rankings themselves