No. 256

April 2005

SMALL BUSINESS

RESEARCH

SUMMARY

The Innovation-Entrepreneurship NEXUS:

A National Assessment of Entrepreneurship 

and Regional Economic Growth and Development 

By S. Michael Camp, Advanced Research Technologies, LLC, Powell, OH

under contract no. SBAHQ-03-M-0353 (2005, 69 pages).

This project was co-funded by the Edward Lowe Foundation, Cassopolis, MI.

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

Purpose

The connection between innovation and entrepreneurship as drivers of local economic development is

often discussed but not often studied. This research

addresses the needs of local policymakers to understand the role of entrepreneurship and innovation in

creating an environment where local economic

growth can thrive.

Overall Findings

Both entrepreneurship (new firms and growing

firms) and innovation (patents, R&D, and hi-tech

industries) are drivers in the growth of regional

economies. This study infers that innovative regions

need entrepreneurship to more fully develop local

economies. Entrepreneurial regions are likely to be

associated with higher levels of technology.

Highlights

• Regional entrepreneurship variation was high

from 1990 to 2001. The average number of new firm

births per 1,000 labor force participants ranged from

9.2 (Glenwood Springs, CO) to 2.0 (Mansfield, OH)

and the average annual rate of change of new firm

births ranged from 11.7 percent (Springfield, MA) to

-8.3 percent (Hilo, HI).

• Most of the top regions for the entrepreneurship

index were in the "non-California" western part of

the country while the lowest regions tended to be in

the Upper New York/Upper Midwest area. The report

contains a complete ranking of individual regions.

• Small and large regions had similar average

annual numbers of new firm births (3.3 percent and

3.4 percent, respectively) and percentages of firms

growing rapidly (4.0 percent and 4.8 percent, respectively). However, small regions had an average annual change in firm births of -3.6 percent while large

regions had a gain of 3.2 percent.

• The most entrepreneurial regions had better local

economies from 1990 to 2001 compared to the least

entrepreneurial. They had 125 percent higher

employment growth, 58 percent higher wage growth

and 109 percent higher productivity. This general

finding held individually for large, medium and

small sized regions but was most pronounced for

large regions.

• The most entrepreneurial regions were associated with higher levels of technology. They expended

nearly 54 percent more of R&D, recorded 67 percent

more patents per labor force participant, had a 63 percent higher percentage of hi-tech establishments and

had a 42 percent higher portion of college educated

population than the least entrepreneurial regions.

• The most entrepreneurial regions tended away

from manufacturing as an economic base, but not

necessarily toward service industries. The most and

least entrepreneurial regions had 12.3 percent and

18.5 percent of their employment in manufacturing

respectively, versus 31.5 percent and 28.5 percent in
services. Over the last 30 years, manufacturing-based

regions have struggled economically.

• Econometric models showed regional firm births

to be positively correlated with innovation and regional growth (employment, wage and productivity). 

• Economic models also showed regional innovation to be positively correlated with regional employment growth.

Scope and Methodology

Indexes were used to rank the 394 regions on their

entrepreneurial and innovation activities. The regional entrepreneurship index was composed of the number of new firms per 1,000 labor force participants,

average annual change in the number of new firms

and the percent of rapidly growing firms. Special

tabulations from the U.S. Census Bureau's Statistics

of U.S. Business Data program were the source for

entrepreneurship data. The regional innovation

capacity index was composed of R&D expenditures,

number of patents and hi-tech's share of the local

economy. The National Science Foundation's Survey

of R&D Expenditures, U.S. Patent and Trademark

Office and U.S. Bureau of Economic Analysis were

sources for innovation data.

Econometric models were also used to evaluate

and show a connection among entrepreneurship,

innovation, and economic growth. Local employment, wage growth and productivity growth represented local economic development. 

The most entrepreneurial regions were defined as

regions within the highest quartile and the least were

defined as the lowest quartile.

FINTEL, LLC of Madison, Wisconsin assisted

with much of the data analysis.

This report was peer-reviewed consistent with

Advocacy's data quality guidelines. More information on this process can be obtained by contacting

the Director of Economic Research at

advocacy@sba.gov or (202) 205-6533.

Ordering Information

The full text of this report and summaries of other

studies performed under contract to the U.S. Small

Business Administration’s Office of Advocacy are

available at www.sba.gov/advo/research. Copies are

also available from:

National Technical Information Service

U.S. Department of Commerce

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847 or (703) 605-6000

(703) 487-4639 (TDD)

www.ntis.gov

NTIS order number: PB2005-103810

Pricing information:

Paper copy, A04 ($31.50)

Microfiche, A01 ($14.00)

CD-ROM, A00 ($18.95)

Electronic download, A00 ($ 8.95)

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