UADA researcher examines economic prospects of AI data centers in rural areas
A researcher at the University of Arkansas Division of Agriculture examined the economic prospects of AI data centers in rural Arkansas, comparing them to manufacturing. The study found that data centers offer favorable economic output and tax impact but generate fewer local employment opportunities. The findings emphasize the need for policymakers to carefully consider tax incentives and local economic linkages when evaluating data center development in rural communities.
Frank Seo, an assistant professor of rural development for the University of Arkansas Division of Agriculture, conducted a simulation to compare the economic impacts of AI data centers versus auto and food manufacturing in rural Arkansas. His study, titled "Data Centers vs. Factories: Do AI Facilities Truly Benefit Rural Economies? Evidence from an Arkansas Simulation," focused on the state level and specifically on four rural counties: Calhoun, Dallas, Newton, and Woodruff.
Seo's analysis, based on a scenario of 100 jobs, examined the output multiplier, employment multiplier, and tax impact of each industry. He found that data centers generally compare favorably in terms of overall economic output and tax impact, generating more tax revenue per dollar of output than manufacturing sectors across all regions. However, data centers often create fewer local employment spillovers, particularly in rural areas with smaller labor pools and fewer local suppliers for the specialized technical workers and services required.
Seo cautioned that while data centers can bring meaningful benefits to public finances through tax revenue, these benefits can be significantly reduced by tax abatements or utility waivers commonly negotiated by developers. He emphasized the importance for rural communities and policymakers to carefully consider these incentives and the ability of the local economy to retain the economic activity, especially in areas with limited supporting industries or local spending opportunities.