Innovative activity is not only widespread in big cities, but also in rural areas

According to a new study by Penn State researchers, innovative activity is not only widespread in big cities, but also in other US regions that aren’t commonly believed to foster innovation or be reported in public statistics.

“The way we traditionally measure innovation is very narrow, and focuses primarily on new products or processes that result in a patent or involve R&D spending. This overlooks another kind of innovation–the incremental improvements that businesses make to their products and processes as a result of information they obtain from outside their firm,” said Stephan Goetz, professor of agricultural and regional economics and director of the Northeast Regional Center for Rural Development (NERCRD). “Our measure shows that this latent, or hidden, innovation is at least as important to local income and employment growth as patent-level innovation.”

The researchers used data from the national Input-Output (I/O) table and applied a mathematical formula to measure the diversity of 381 intermediate industries with their customers and suppliers. The measure captures innovation that isn’t reflected in typical statistics such as patents, R&D spending, or science and engineering workers.

A “latent innovation index” was assigned to each U.S. county based on the degree to which opportunities for latent innovation exist.

The researchers found that counties with higher innovation scores also had greater employment and income growth, even when controlled for the number of patents held within. county. In addition, they found that this type of innovation activity is present in both densely populated counties and sparsely populated, more rural counties.

“What these correlations suggest is that it’s not just patent-based innovation that brings economic benefits to businesses and communities, and innovation is not restricted to urban centers with large populations,” Goetz said. “This type of latent or hidden innovation is not recorded and tracked the way patents are, but it appears to be at least as important in terms of economic growth and it is happening in all types of places–rural and urban and in-between.”

“We often see media articles touting big cities as innovation centers, and our research brings a different perspective to the conversation,” he said. “Yes, places like Silicon Valley, Seattle and Boston are home to tech firms that are developing entirely new products and technologies. But at the same time many non-tech businesses also engage in innovative activity that is less obvious but nonetheless moving their industries forward and, more importantly, keeping them competitive.”

Journal Citation

Research Policy
Volume 49, Issue 2, March 2020, 103909
“Latent innovation in local economies”
Stephan J.Goetz Yicheol Han

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