Gauging a Region's Entrepreneurial Potential (2005)

Regions are facing rapidly evolving pressures from today's global economy. The old rules of the game, where traditional assets such as cheap land and labor determined a region's success or failure, no longer apply. Instead, new categories of assets are shaping economic prospects-assets like workforce skills, lifestyle amenities, access to capital and information, and innovative activity. Finding new pathways to tap these assets makes economic success much easier.The first step along each new pathway is to measure a region's assets. The Center for the Study of Rural America is working to quantify today's critical regional assets by developing a series of asset indicators. These measures should help regions gauge their own competitive capacities, as well as provide a better understanding of the new drivers of regional economic growth.Entrepreneurship is emerging as a particularly promising new engine for regional growth. The relation between long-term regional employment growth and entrepreneurship is strong. Not only do entrepreneurs create new local jobs, but they also generate new wealth and new growth. In addition, entrepreneurs are innovative users of other regional assets and resources. In fact, entrepreneurs appear to be a critical mechanism for bringing new ideas and innovations to the marketplace.Despite the growing recognition that entrepreneurship is a vital driver of strong regional growth, acceptable ways of measuring entrepreneurship still are not widely available. Without standard measures of entrepreneurship, private and public decision makers cannot properly evaluate a region's entrepreneurial activity-nor assess ways to spur faster economic activity.Ideally, two distinct measures of entrepreneurial activity would set critical benchmarks. The first would assess the quantity, or breadth, of entrepreneurial activity across a region. Entrepreneurial breadth reflects the size and variety of small businesses in a region that create the foundations for economic growth. Until recently, breadth measures have been absent from economic radar screens. The second measure would assess the quality, or depth, of entrepreneurial activity in a region. Depth represents the value these small businesses generate for themselves and their local economy.Research suggests that rural areas are fostering entrepreneurs but find it more difficult to produce high-value entrepreneurs. Regions that succeed in producing high-value entrepreneurs typically offer a core urban area, a base of human and financial capital, amenities, and infrastructure that support entrepreneurial development. Together, these findings suggest a new set of policies to support entrepreneurs in rural regions.This article develops measures of entrepreneurial breadth and depth and uses them to gauge entrepreneurial activity across the United States. The analysis focuses on nonmetropolitan, or rural, counties-where small-scale businesses play an especially important role in regional development. But the analysis can apply to any county. The first section defines entrepreneurs and the measures of breadth and depth. The second section shows where entrepreneurial activity is occurring in the United States. The third section discusses key factors that foster regional levels of entrepreneurial breadth and depth. Finally, the fourth section explores some policy implications for regional development.I. MEASURING ENTREPRENEURSHIPAnalysts currently lack effective measures of both the breadth and depth of entrepreneurship in a region. Breadth reveals the size of a region's entrepreneurial foundation, giving a sense of how many small businesses employ local resources, generate local income, and enhance local quality of life. Depth reveals the value these foundations add to the local economy and offers insight into whether a region's entrepreneurs are reaching the frontiers of the marketplace. This section first describes entrepreneurs and then discusses why they are important to regional economies. …