New Tools to Guide Economic Development: The Index of Innovation

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• New Tools to Guide Economic Development The
  Index of Innovation
• EDA Research Symposium, October 21, 2009

Timothy Slaper, Director of Economic Analysis
Indiana Business Research Center tslaper_at_indiana.e
du
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Developing Indicators of Innovation at the
County and Regional level

• Previous indexes of innovation have focused on
  states or countries
• THE 2008 STATE NEW ECONOMY INDEX Benchmarking
  Economic Transformation in the States (Atkinson
  and Andes, Kaufmann Foundation, 2008)
• EUROPEAN INNOVATION SCOREBOARD Comparative
  Analysis of Innovation Performance

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Guideposts for Developing Indicators

• European Categories
• what drives innovation
• what creates knowledge
• what promotes entrepreneurship
• what are the tangible results of innovation
• what are the intellectual property results
• Kaufmann Categories
• knowledge jobs
• globalization
• economic dynamism
• transformation to a digital economy
• technological innovation capacity

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Kauffman Foundation Innovation Index (2007)
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Measuring Innovation Regionally

• Timely, publicly available data (mostly)
• Requires county-level data
• Many regions cross state lines

• Some regions are predefined
• Users should be able to define their own regions

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Defining Innovation

• Innovation puts ideas into action
• new or improved goods and services
• new technologies and processes
• increases value productivity
• increases profits and/or compensation
• incremental or radical
• ability to move from lower value-added production
  to higher value-added production
• Innovation increases GDP, more specifically,
  compensation and profits

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Target Audience for Innovation Index

• Economic Development Practitioners
• Goal get EDPs to use easily found data to inform
  their discussions about strategic directions
• Important Considerations
• Let them define custom regions or choose from
  other benchmark regions
• U.S. 100
• Drill down to detailed data to see underlying
  components of innovation

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Measuring Innovation Input

• Human Capital
• Educational Attainment
• bachelor's degree or higher
• associates degree or some college
• Young Adult Population Growth (ages 25 to 44)
• High-Tech Employment Share
• Technology-Based Knowledge Occupations

• Economic Dynamics
• Venture Capital
• Private RD
• Broadband Density and Penetration Rate
• Establishment Churn
• Establishment Size
• - small lt 20 workers
• - large gt 500 workers

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Measuring Innovation Output

• Productivity and Employment
• Change in High-Tech Employment
• Job Growth
• Gross Domestic Product per Worker
• Patents
• Average per 10,000 Workers

• Economic Well-being
• Poverty Rate
• Unemployment Rate
• Average Net Migration
• Growth in Per Capita Personal Income
• Compensation
• wages salaries
• proprietor income

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The Innovation Index
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Characteristics of Innovation Index
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Detailed data for the selected regions and the
counties that comprise the regions
The question then becomes Which factors are the
most important for innovation? Empirical
analysis Selected GDP-per-worker as dependent
variable
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Innovation Index The Next Step

• Indexes and indicators are motivated by a
  rationale about what contributes to innovation
• But many indexes, like the European innovation
  measure, are a collection of equally weighted
  measures
• Which factors matter most?
• Matter for what? (defining dependent variable)
• Results vary depending on how you define the
  result
• We selected GDP-per-worker
• Few data series of sufficient length for
  predictive statistical models

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Empirical Innovation IndexModel Results
Which factors have the greatest influence on
economic growth?

• Educational attainment
• Young adult population growth
• Increasing share of high-tech employment
• Number of small establishments
• Venture capital
• Increase in broadband density
• One-size-fits-all approach

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Empirical Index Next Steps

• First empirical index derived from all 3111
  counties
• What drives economic growth may vary depending on
  county or regional characteristics
• Which characteristics matter?
• Do the results change when county characteristics
  are taken into consideration?

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Empirical Index Does Size Matter?

• Four (simplistic) measures of size
• GDP
• Population
• Population Density
• Distance to a metropolitan area
• Counties stratified into quintiles based on size

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Larger versus Smaller Counties

• Education
• Smaller counties ? bachelors
• Larger counties ? some college or associates
  degree
• Churn
• Benefit for larger
• Detriment for smaller
• Broadband
• Benefit for larger
• Not significant for smaller
• What else did we learn?

Other findings
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Quintile stratification
is not such a good idea
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What is Driving the Results?
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Avenues for Further Research

• Do the most important innovation factors vary
  across regions? (Census regions? BEA regions? EDA
  regions?)
• Spatial analysis/econometrics
• Resource endowment
• Rural-only analysis
• Disaggregate churn components