I addressed that question, among others, in chapter 9 of the Food Police. For myriad conceptual reasons outlined in the chapter, on my blog, and elsewhere, I do not find this sort of argument to be very compelling. Today, a colleague forwarded an article in the Economic Development Quarterly by some agricultural economists (the lead author was a student in one of my courses at Purdue) which provided some empirical evidence on the issue.
Here are the authors on the motivation for the study:
Local markets are believed to provide farmers with a higher share of the food dollar, with money spent at a local farm and nonfarm businesses circulating within the community, creating a multiplier effect and providing greater local economic benefits (USDA, 2012). Furthermore, agritourism generates additional dollars in the local economy as visitors spend money in associated regional travel. As a result, CFA is seen as a potential contributor to local economic growth.What did they find?
Using Census of Agriculture data, regional growth models are estimated on real personal income per capita change between 2002 and 2007. We find no association between community-focused agriculture and growth in total agricultural sales at the national level, but do in some regions of the United States. A $1 increase in farm sales led to an annualized increase of $0.04 in county personal income. With few exceptions, community-focused agriculture did not make significant contributions to economic growth in the time period analyzed.Rather, one of the factors they find to have the biggest effect on growth in per capita income is how "tradable" a county is - as measured by the share of business establishments that are in tradable sectors. A 1% increase in the share of establishments in tradable sectors was associated with a $3,235 increase in per capita in county personal income.
I've said it time and time again, but trade (facilitated by comparative advantage and specialization) is what makes us wealthy. Do what you do well and trade with others for what they do well, and both are better off. Policies or movements that seek to deny that basic axiom, even when applied to local food production, have dubious economic merit.