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8/12/2019 Low Innovationone

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Innovation and Entrepreneurship : Framingthe Questions in Rural Space

Sarah A. Low

Regional Economics and Public Policy

University of Illinois

The Importance of Innovation andEntrepreneurship

Innovation drives the economy, the

nnova or s e en repreneur c umpe er

1911)

Ample work on entrepreneurships

contribution to national growth

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The Importance of Innovation and

Entrepreneurship Entrepreneurs are innovative users of

reg ona asse s

What is the link between innovation and

entrepreneurship in rural America?

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Innovation + EshipProsperity?Agglomeration + LuckProsperity???

Relevant Literature

Schumpeter (1911) predicts entrepreneurs

w ea o econom c grow

Larger firms replacing smaller, has

negative effect on innovation and

entrepreneurship (Schumpeter 1942)

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urban areas-thicker markets, lower fixed

costs (Shane 2003)


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Relevant Literature

Acs: 2 competing theories Diversity; density not necessary

,

innovation and eship

Knowledge Spillover Theory of Entrepreneurship:

eship provides mechanism for knowledge spillovers

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Focus on supply side: aligns with Schumpeter,regions, infrastructure, and knowledge

Relevant Literature Eship Supply (knowledge, opportunity) and

Demand (backward linkages)

2005)

Which determines rate of eship will vary regionally

Rural eship and innovation not studied as much

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Strumsky 2006)

Our measure of eship has positive impact on factors

of production in the rural US (Thompsen et al. 2006)


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Framing the Question

If we adopt the agglomeration idea Eship and innov are higher in urban areas

controls for population

Supply side factors needed for entrepreneurship

to create growth

Market opportunities-thick markets, people

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-

Next best occupation -opportunity cost of self-

employment

Infrastructure, amenities-is this a nice place to be and

do business?

Research Questions

Does supply side reasoning hold in rural

p aces

Is agglomeration necessary for eship and

innovation to drive growth?

How do eship and innovation relate to

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Measures of Entrepreneurship

Breadth calculated as:

nonfarm proprietors nonfarm employment

Proprietor Value calculated as:

nonfarm proprietor income nonfarm total

income

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Entrepreneurship Breadth

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< 20% (Mean)

20-27.5% (Mean Mean + 1 St Dev)

>27.5%


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Proprietor Value

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< 13% (Mean)

13-17.5% (Mean Mean + 1 St Dev)

>17.5%

Measure of Innovation

Innovation calculated as:

Patents (1990) per capita

Not a good measure of innovation

Wei ht number of atents for their im ortance?

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ie- incremental patents v. radical patents, #

citations


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Innovation

13

Average

Average + 1 StDev

> 1 StDev above Ave

< .00036 (Mean)

.00063-.0036 (Mean Mean + 1 St Dev)

>.0036

Hypotheses

H1: Innovation and entrepreneurship drive

rura emp oymen grow

H2: Combining innovation and eship is the

best way to produce rural employment

growth

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Hypotheses

H1: Innovation and Entrepreneurship driverural employment growth

s agg omerat on necessary or nnov an

eship to generate growth?

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Entrepreneurship and Population.4

Eship by

Agglomeration

Eship

.1

.2

. necess ty

1.5 million

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0

0 1.00e+07 2.00e+07 3.00e+07 4.00e+07pop05

Predicted fit for Breadth05 based on County Population


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Entrepreneurship and Population

.2

5

.1

.15

.2

Fitted

values

3.5 Million

17Predicted Fit for PropValue05 based on Pop05

.0

5

0 2000000 4000000 6000000 8000000 1.00e+07pop05

Hypotheses H2: Combining innovation and eship is the

best way to produce rural employment

Should rural policy focus on growing the

Entrepreneur

Innovator

Or both?

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Patents per Capita and Population

5

.002

.0005

.001

.001

Fitted

values

Patents have pos itive

relationship with

population

19Predicted Fit for PatPC99 based on Pop05

0

0 2000000 4000000 6000000 8000000 1.00e+07pop05

Eship and Patents per Capita

5

.0006

.0003

.0004

.000

Fitted

values

Interesting because

Eship Breadth is highest

in rural areas

20Predicted Fit for PatPC based on Breadth05, zero patents dropped

.0002

0 .2 .4 .6nf proprietor employment over nf employment, reis, 2005


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Interaction Variables & Growth

Breadth*Innov:

Proprietor Value*Innov: Each is normalized to one, then multiplied

Growth measured as employment growth

over 1991-2001 business cycle

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Expected Results H1 : Growth = (+) innov or (+) eship

H2: Eship/Innov interaction (+)

relationship with growth

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Control Variables

Agglomeration Population

Recast Creative Class, McGranahan and Wojan 2007

Natural amenities Distance to National Park

Financial capital

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Bank Deposits per Capita

Infrastructure None, difficulty with 1990 measure

Empirical Model Hausman test detects simultaneity inmodel

I.V. choice is problematic

Also: how to control for spatial dependency

within 2SLS framework

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Spatial Dependency

Controlled for in all counties model

Queen contiguity weights matrix

LM error and LM lag tests significant

Robust LM-lag test significant for all models

We use spatial lag model

No ood solution for rural counties

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H 1: Growth=Eship or Innov

Rural All-OLS All-LAG

Breadth + + +

PropValue - +

PatPC

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R-square .20 to .14 .20 to .14 .22 to .16

N 2009 3105 3050


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H2:Growth=Breadth, PatPC, Interaction

Rural

Rural-

2SLS

All-

OLS

All-

2SLS

All-

LAG

PatPC + + +

Breadth + + + + +

Breadth

* + + +

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R-square .20 .19 0.21 0.22

N 2006 2006 3046 3046 3105

H2:Growth=PropVal, PatPC, Interaction

Rural- All- All- All-

PatPC + +

PropValue + + +

PropValue

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*PatPC - - -

R-square 0.14 0.15 0.16

N 2006 2006 3046 3046 3105


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Conclusion

Research Question: Do rural places with

g er es p an nnova on ave g er

growth?

Positive relationship exits

Eship Growth

Results of interaction inconclusive

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Results dependent upon definition of eship

and innovation

Conclusion

Little difference b/w all & rural counties

Agglomeration not necessary to create

employment growth from entrepreneurship

Human Capital is strongest (+) control variable

Suggests that knowledge is important, not

necessarily agglomeration

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Weaknesses of Analysis

Methodological difficulties

Endogeneity

Instrumental Variables

Measures of Innovation

Not capturing what Id hope it would

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