Firm and Regional Economic Outcomes Associated With A New Broad Measure of Business Innovation

Entrepreneurship & Regional Development
An International Journal
ISSN: 0898-5626 (Print) 1464-5114 (Online) Journal homepage: https://www.tandfonline.com/loi/tepn20
Firm and regional economic outcomes associated

with a new, broad measure of business innovation
Brian E. Whitacre, Devon Meadowcroft & Roberto Gallardo
To cite this article: Brian E. Whitacre, Devon Meadowcroft & Roberto Gallardo (2019)
Firm and regional economic outcomes associated with a new, broad measure of
business innovation, Entrepreneurship & Regional Development, 31:9-10, 930-952, DOI:
10.1080/08985626.2019.1630486
To link to this article: https://doi.org/10.1080/08985626.2019.1630486
Published online: 13 Jun 2019.
Submit your article to this journal
Article views: 300
View related articles
View Crossmark data
Citing articles: 1 View citing articles
Full Terms & Conditions of access and use can be found at

https://www.tandfonline.com/action/journalInformation?journalCode=tepn20
ENTREPRENEURSHIP & REGIONAL DEVELOPMENT
2019, VOL. 31, NOS. 9–10, 930–952
https://doi.org/10.1080/08985626.2019.1630486
Firm and regional economic outcomes associated with a new,

broad measure of business innovation
Brian E. Whitacrea, Devon Meadowcrofta and Roberto Gallardob
a
Department of Agricultural Economics, Oklahoma State University, Stillwater, OK, USA; bPurdue Center for
Regional Development, Purdue University, West Lafayette, IN, USA
ABSTRACT ARTICLE HISTORY

Most innovation-oriented studies use measures such as patent activity or Received 9 October 2017
research expenditures, likely ignoring the role of more home-grown upgrades Accepted 15 May 2019
or opportunity-recognizing activity common in businesses across the U.S. This KEYWORDS
study develops a broader ‘innovation index’ using a new survey of businesses Innovation; economic
that provides a wide lens for capturing innovative practices. The index is used outcomes; regional
in a series of regressions testing the relationship between innovation and development; spatial Durbin
both firm and regional-level economic outcomes. Results from the firm-level error model
regressions show that the innovation index has a positive and significant
relationship with wages paid to employees and product market growth. The
regional analysis demonstrates that innovation is correlated with several
regional economic variables, including median household income, and that
spatial spillovers from innovation exist in some instances.
1. Introduction
Innovation has long been hailed as an important component of business success (Heunks 1996;
Srinivandasan et al. 2009). Measurable differences in innovation have been found between large and
small businesses (Acs and Audretsch 1988) and rural and urban firms (Keeble 1993). Additionally,
a growing body of evidence has examined whether innovative activity ‘spills over’ to nearby regions,
and to what extent such activity is associated with economic growth (Fritsch and Franke 2004;
Rodriguez-Pose and Crescenzi 2008; McCann and Simonen 2005). Although most empirical studies
focused on innovation use data from the European Union (EU), U.S. federal policy efforts have
embraced the idea that innovation can improve economic outcomes. For example, the department
of Housing and Urban Development’s (HUD) Rural Innovation Fund, the Economic Development
Administration’s (EDA) Regional Innovation Strategies, and the now defunct Department of
Commerce’s National Innovation Marketplace all promote innovation as a way to increase job oppor-
tunities and improve quality of life. However, there are no commonly accepted criteria for being
‘innovative,’ and little U.S.-based research has explored the regional-level economic outcomes asso-
ciated with business innovation. Further, most studies in this area use a diluted measure of innovation –
focused on patent activity or research dollars spent – and potentially ignore the role of more home-
grown solutions or opportunity-recognizing business activity. This paper contributes to the existing
body of evidence in this field by developing a new, broader measure of innovation and assessing its
relationship with both firm and regional economic activity in the U.S. Such a measure is likely more
relevant to the many small businesses across the country that lack a formal research and development
agenda.
CONTACT Brian E. Whitacre brian.whitacre@okstate.edu Department of Agricultural Economics, Oklahoma State

University, 504 Ag Hall, Stillwater, OK 74078-6033
© 2019 Informa UK Limited, trading as Taylor & Francis Group
ENTREPRENEURSHIP & REGIONAL DEVELOPMENT 931
The objectives of this study are: (1) to determine what business-level outcomes are associated with
a new, broad measure of innovation and (2) to explore regional-level economic outcomes that may be
associated with this updated measure of business innovation. The paper primarily uses data from the
restricted-access Rural Establishment Innovation Survey (REIS), which was organized and distributed by
the USDA’s Economic Research Service (ERS) in 2014. The REIS contains a sample of over 10,000 businesses
with at least 5 employees, with about 74% coming from non-metropolitan counties. The survey asks
detailed questions about business practices, including many activities that might be considered innova-
tive but that have not been available to use in prior innovation metrics (for example, how often business
processes are changed in order to address customer complaints). This study uses factor analysis on 15
innovation-related survey questions to create a broad ‘innovation index’ that should more accurately
capture the variety of tools used by U.S. businesses to introduce new goods or services.
For business-level outcomes, our approach follows a simple linear model where innovation is
directly related to output. Regression is used to determine the effect of the new measure of firm
innovation on company sales, hourly wages paid, and benefits offered. Control variables include
the size of the firm, industry category (by 2-digit North American Industry Classification System
(NAICS) code), regional location (by Census region), and participation in government programs
such as technology assistance or worker training efforts. The independent variable of interest in
these models is the innovation index, and an interaction term is used to assess whether the impact
of innovation varies by metropolitan status.
The regional analysis follows the recent literature on knowledge spillovers, and constructs aggregate
innovation indices for newly defined commuting zones (CZs), which were designed by ERS to represent
local economies and typically contain 3–6 counties. County-level economic variables such as unemploy-
ment rates, median household income, creative class employment, and poverty rates were also aggre-
gated to the CZ level using population weights by county. Multiple techniques are used to assess the
relationship between the innovation index and economic variables, including simple correlations, bivari-
ate Moran’s I measures, and spatial regressions that allow estimation of spillover effects.
The paper proceeds with a literature review focused on linkages between innovation, small businesses,
and regional development. The following section details the data and methodology used, including
construction of the innovation index that serves as the independent variable of interest in the business-
and regional-level regressions. This section also introduces the CZs and presents the rationale for their use.
The results section then provides descriptive statistics for all variables in the analysis and interprets the
findings of our primary specifications. The paper concludes with a discussion of the limitations of this
analysis, areas for future research, and policy implications of the results.
2. Literature review
2.1. A brief overview of innovation and its measurement
Innovation is a complex process with a long history in the economic literature. Perhaps the most
famous conceptualization of economic innovation is Schumpeter’s ‘creative destruction’ model,
which argued that the engine of capitalism was constant change through new commodities, new
technologies, new sources of supply, and new types of organizations that incessantly replace the
old (Schumpeter 1942). This work built on Schumpeter’s earlier (1934) treatise on economic
development that differentiated between product innovation (defined as the introduction of
a new good) and process innovation (defined as the introduction of a new method of production).
Many studies since then have compared and contrasted these two categories of innovations
(Utterback and Abernathy 1975; Fritsch and Meschede 2001; Becker and Egger 2013); though
Simonetti, Archibugi, and Evangelista (1995) argue that over 95% of all innovations fall into
a grey zone depicting a combination of the two groups.
The economics literature has also delved into how innovation happens, and has constructed
several competing theories for how innovation contributes to firm-level outputs and larger-scale,
932 B. E. WHITACRE ET AL.
regional development. Early work posited a simple linear model with a direct relationship between
applied research, innovations, and greater growth (Maclaurin 1953; Godin 2005). Along this line,
Roper, Du, and Love (2008) use data from Ireland to model the ‘innovation value chain,’ and find
strong complementarity between public and private (i.e. firm-level) sources of knowledge. They
find that both forms (public and private) contribute to product and process innovation, but
determine that public sources have only an indirect impact. Alternatively, the ‘chain-linked
model’ by Kline and Rosenburg (1986) emphasizes the numerous feedback mechanisms associated
with innovation and distinguish between early and late-stage research. Other theoretical models
attempting to uncover the impact of innovation on broader economic outcomes include regional
innovation systems (Asheim and Isaksen 2002) and knowledge spillovers (Jaffe 1986; Audretsch and
Feldman 1996). These are reviewed in more detail in section 2.2, including a discussion of how the
REIS data used here fits in.
One of the most challenging aspects of studying innovation is measuring it. The OECD (1992,
1996, 2005) has now constructed three editions of the ‘Oslo Manual’ with guidelines for gathering
and using innovation data. Similar to other studies on the topic, this manual attempts to distin-
guish between product and process innovations (and other categories, such as marketing or
organizational innovations). While several pages of the manual are focused on the components
and coverage of innovation activities, it recognizes that ‘it is generally difficult to ask for quanti-
tative measures of the effects of innovations in surveys (p. 109).’ The Oslo manual emphasizes
breaking down innovation expenditures by type of activity, and utilizing appropriate survey
techniques to collect data on innovation-related activities. The UK developed its own innovation
index based by building on the recommendations of the Oslo manual and other efforts (National
Endowment for Science, Technology and the Arts (NESTA) 2009). Their quantification broke
innovation investment into seven categories, and found that the aggregate investment was
responsible for two-thirds of productivity growth between 2000 and 2007.
Traditionally, many studies have proxied for innovation by using data on patent applications or
research and development expenditures by firms or regions. However, Wojan and Parker (2017)
argue that by relying heavily on this type of measurement, rural firms may be penalized. They
contend that grassroots or user-developed innovation may be more important to rural firms, but
note the historical difficulty in developing a more comprehensive measure via surveys. This
limitation led to the development of the survey used in this paper, the 2014 REIS, which captures
self-reported innovation among firms in rural areas of the United States.
2.2. Innovation and firm/regional economic outcomes

As the previous section notes, the economics literature has produced a variety of approaches to
estimating the relationship between innovation and economic outcomes. The earliest attempt, the
simple linear model, was initially used to assess linkages between investment in innovation and firm-
level outcomes. While it can be extended to larger-scale development measures, this theory has been
critiqued as being too simplistic given the inherent uncertainty and disjointed nature of innovation (Kline
and Rosenberg, 1986). Two alternative theoretical models that have found support are (1) ‘regional
innovation systems,’ which posits that embedded networks can spur or discourage innovation, and (2)
knowledge spillovers, which argues that information diffusion can lead to improved economic perfor-
mance for external firms and larger regions. For instance, Morgan (1997) emphasizes ‘learning regions’ as
an example of regional innovation systems at work, while Sonn and Storper (2008) demonstrate that
geographical proximity is important for business development of patents. An interesting attempt to
combine the three approaches finds significant spillover impacts but also strong distance decay effects
(Rodriguez-Pose and Crescenzi 2008).
The resulting literature across this variety of approaches is mixed. Practitioners of the linear
model typically find a positive relationship between innovation and firm-level performance. For
example, the meta-analyses of Rubera and Kirca (2012) and Rosenbusch, Brinckmann, and Bausch
(2011) generally find that innovativeness is directly related to firm value. Likewise, management
scholars argue that innovation capability is the most important determinant of firm performance
(Mone, McKinley, and Barker 1998). When the discussion turns to innovation’s impacts on larger
regions, however, the findings are more nuanced. Studies using both the regional innovation
systems approach and the knowledge spillover approach have found links between innovation and
advancements in regional economic development and expansion (Ahlstrom 2010; Fagerberg and
Srholec 2008; Cornett 2009; Pezeshkan et al. 2016; Albert 2017; Asheim and Coenen 2005). Findings
of this nature have been tied to arguments calling for regional policy to promote innovation
through fostering entrepreneurship and R&D (Landabaso 1997; Michael and Pearce 2009).
However, such findings are not universal. Shearmur and Bonnet (2011) use Canadian data to
argue that there is essentially no link between local innovation (measured by patent applications)
and local development. Similarly, Gonzalez, Jung, and Pena (2015) find only a very limited
connection between knowledge and innovation-driven entrepreneurship in less developed
countries.
One additional area of interest for our study is the discrepancy in innovation between rural and urban
areas. Keeble (1993) found that firms in metropolitan areas have higher growth rates and produce more
original innovative products than their non-metropolitan counterparts. Likewise, Isaksen and Onsager
(2010) show that new firms that are involved in knowledge intensive, innovative industries are more likely
to form in urban areas over rural locations. Funding for innovation projects in rural areas is also a problem.
One study in Europe (Bonfiglio et al. 2017) discovered that funds allocated for revitalizing rural develop-
ment through innovation oftentimes did not make it to their intended audiences due to policy disputes.
This finding is even more troubling in light of the finding in Esparcia (2014), who emphasized that plans to
encourage business innovation in non-metropolitan locations will likely not succeed if outside funding is
not made available. Wojan and Parker (2017), who were the first to use the REIS data built upon here, also
find that ‘substantive innovators’ were more likely to exist in urban areas. However, Wojan and Parker
demonstrate that innovation rates are actually very similar between urban and rural manufacturing
establishments, but are notably lower for rural firms in the service sector.
Most of the above studies use European data, and there is little empirical work on this topic for
U.S. firms or areas. The current paper addresses this gap, and assesses linkages between innovation
and firm/regional outcomes using specific theoretical models discussed above. In particular, our
firm-level approach follows the simple linear model that assumes a direct relationship between
innovation and firm outcomes, while our regional model uses a knowledge spillover framework to
assess the extent to which high-innovating regions impact their neighbors. Wojan and Parker
(2017) provide the only analysis of this topic for the rural U.S., and find that innovation intensity
positively impacted rural employment and wage growth during the economic recovery of
2010–2014. However, their methods for defining innovation and assessing its regional impact
vary from the approach used here. Further, while the recent literature has focused heavily on
whether spillover effects from innovation exist – that is, whether surrounding areas benefit from
high levels of innovation – most of these studies use data from Europe (Fritsch and Franke 2004;
McCann and Simonen 2005; Asheim and Coenen 2005). Notably, such studies were likely influential
in the EU’s development of the ‘Smart Specialisation Agenda,’ which emphasizes targeted innova-
tion support and developing region-specific strategies (European Commission 2014). Putting the
focus solely on the U.S., and incorporating a broader measure of innovation, will aid in making
meaningful policy recommendations that can be tailored to domestic businesses and regions. This
includes exploring whether innovation is more or less important for businesses in rural locations,
and the extent to which spillovers exist for areas surrounding an innovation center. The existence
of such spillovers in a U.S. context would provide ammunition for policy advocates who might
argue that policies promoting innovation impact more than just the areas receiving innovation-
related programs or funding.
3. Data and methods

The data for this analysis comes mainly from the Rural Establishment Innovation Survey, which was
completed by a total of 10,929 U.S. businesses from April to November 2014. The survey was sent
out by USDA’s Economic Research Service (ERS) and was implemented via a mixed-method
approach, allowing for responses via phone, mail, or the internet. The sample population consisted
of business establishments with more than five employees in tradable industries1 (Moore, Miller,
and Vakoch 2015). The survey included 50 numbered questions, but many questions had sub-
sections that allowed for additional detail. The survey over-sampled from rural areas, since a goal of
the program was to assess the level of innovativeness in rural businesses across the country.
Importantly, survey weights were included in the final database. The use of these survey weights
allows the sample to be considered nationally representative. County-level identifiers were also
collected, allowing for maps and geographic patterns to be constructed.
Fifteen specific survey questions were used to construct an ‘innovation index’ ranging from 0–1
via factor analysis, as detailed in section 3.1.2 This approach of creating an index is one that has
found support in the recent innovation literature (Crowley and Bourke 2018; National Endowment
for Science, Technology and the Arts (NESTA) 2009; Roper et al. 2009). Additional survey questions
relating to business-level outcomes are used for the dependent variables described in section 3.2,
which also outlines the methodology for modeling the relationship between innovation and firm-
level outcomes such as employee wages or market growth. Section 3.3 introduces additional data
taken from the U.S. Census used to provide both dependent and control variables for the regional-
level economic outcome measures. Section 3.3 also describes the statistical techniques used for
this portion of the analysis (bivariate Moran’s I and spatial regressions).
3.1. Factor analysis and construction of an ‘innovation index’

Factor analysis allows researchers to group together variables and identify the latent features
that can detect similarities within them. ‘Factors,’ or subsets of variables, are created when
a group of variables has an alike pattern of response. This technique is a useful tool for
combining many variables into one (Fruchter 1954). Within the ERS survey, 15 specific questions
were selected to be included in the factor analysis because their wording suggested a potential
association with innovative practices or approaches.3 Generally, the responses are ordinal in
nature, with sub-elements of a question aggregated to construct a single measure. Appendix
A lists the survey questions asked for the resulting 15 innovation-related variables, along with
a description of the associated summary statistics. Looking across the metro and non-metro
averages for the variables included in Appendix A, it becomes clear that metropolitan busi-
nesses display higher average levels than their non-metro counterparts. Thirteen out of the
fifteen variables display statistically significant differences between the groups, and in all
thirteen instances the metropolitan average is higher. This discrepancy is an important part of
the analysis that follows.
Before the factor analysis was performed, the Kaiser-Meyer-Olkin (KMO) score was estimated as
a measure of sampling adequacy. This score looks at the partial correlation of the variables being
included in the factor analysis and is a general measure of the sample size’s ability to adequately
accomplish a factor analysis (Kaiser 1974). For the variables under consideration, the KMO score
was 0.8903, which is higher than the recommended score of 0.80.4 After the KMO score estimation,
the factors were obtained through varimax rotation and by constructing linear combinations of all
potential factors for the underlying latent variables.5 The resulting coefficient for each variable
reflects how important it is to the total factor score.
Once the factor analysis was performed, an ‘innovation index’ was compiled using the results.
This index normalized each component from the factor analysis and then added them together,
with each factor receiving equal weight. The end result was a score from 0 to 1, with higher scores
representing more innovative businesses. A benefit of this index is that businesses across different
industries and geographies can be compared to one another, despite significant characteristic
differences. Another benefit is that the index does not use an arbitrary cutoff point to define which
businesses are innovative; rather, it is a continuous measure.
3.2. Firm-level regressions

At the firm level, the primary question of interest is whether innovation impacts specific outcome
measures. Unfortunately, the REIS contains relatively few questions on the economic health of the firm;
in particular, no traditional measures such as firm productivity or profit are gathered. There are, however,
three particular questions that provide at least some insight. The three measures, all self-reported, are:
- hourly wage paid to employees (hourlywage),

- overall growth of the market that the business is providing their goods/services for
(growingmarket),
- number of firm-provided benefits that employees receive (employeebenefitssum).
Hourlywage is a continuous variable denoting the average wage paid to all employees
(wages over $300/hour were excluded, since some respondents apparently entered annual
salaries as opposed to hourly wages). Growingmarket is a binary variable that takes the value
1 if the current market for the business’s goods/services is growing and 0 otherwise. Finally,
Employeebenefitssum is an ordinal variable from 0 to 6 based on the types and number of
benefits provided to employees. Such benefits include retirement plans, whether businesses
cover the costs of worker training, and paid maternity leave. While none of these variables is
arguably ‘better’ than more traditional measures of success such as profit, they do provide
a variety of views into how the business is being run. All three variables are designated as the
dependent variables in regression analyses with a series of business characteristics serving as
the independent variables. We follow a traditional linear model to estimate this relationship,
with the hypothesis that the innovation index has a direct impact on the outcome measures.
Thus, the basic regressions take the form:
yi ¼ Xi β þ Ii γ þ ðNM Xi Þθ þ ðNM Ii Þδ þ εi (1)
where yi is one of the three business-level economic outcome measures listed above; Xi is a vector of
control variables such as number or type of employees, NAICS code, and self-reported economic vitality
of the local community; Ii is the primary variable of interest (the innovation index); NM is a dummy variable
for whether or not the business is located in a non-metropolitan county; β; γ; θ; and δ are associated
parameter vectors; and εi is the associated error term, all for business i. A key feature of these models is
that the interaction terms created (NM Xi , NM Ii ) will allow for testing of whether the specific business
characteristics that affect business’ economic outcomes change in rural locations. Given the varying
nature of the dependent variables, the final specifications will include simple ordinary least squares
(hourlywage), logit (growingmarket), and ordered logit (employeebenefitssum) models.
We are up front that our specification does not firmly establish a direction of causality. It is
conceivable (and even probable) that higher wages or growing markets may drive firms to be more
innovative, rather than vice-versa. However, the survey does not provide a suitable measure that
could serve as an instrument for the innovation index, and thus our analysis is intended to function
as preliminary evidence regarding whether the relationship is positive or negative.
3.3. Regional-level economic outcomes

The REIS contained observations from 2,245 of the 3,143 counties in the U.S (71%). The number of
observations per county ranged from 1 to 106. However, using only a single (or very few)
observations to construct a representative index score for a county would be highly susceptible to
sampling error. Thus, the counties were mapped to substate-level commuting zones (CZs) com-
piled by ERS, which were created ‘to more closely reflect the local economy where people live and
work’ (Economic Research Service (ERS) 2016).6 This achieves the goal of finding a functional
geography that allows for aggregating innovation scores. Each CZ contains a core city, and REIS
respondents likely draw from CZ assets as they run their businesses (i.e. for labor, input purchases,
and sales territory). CZs with fewer than 4 observations were removed out of concern that the
resulting estimates would be highly susceptible to sampling bias. There are 706 CZs in the
continental U.S., and aggregate innovation indices can be compiled in 581 of them (82%).
To model the relationship between innovation and regional-level economic outcomes, county-
level socioeconomic variables were compiled from the U.S. Census.7 County population weights
were then used to construct aggregate-level CZ measures (i.e. by weighted average). Variables
compiled include unemployment rates, median household income, poverty rates, rural-urban
continuum code (RUCC), natural amenity rankings, % white/Hispanic/African-American, % with
bachelors or graduate degrees, farming/manufacturing/mining dependency, % in specific age
categories, % employed in the creative class, and % with access to 25 megabits per second
broadband (as defined by the 2014 National Broadband Map). Simple correlations and bivariate
Moran’s I8 calculations are used to demonstrate whether innovation and four distinct regional
economic outcome variables (median household income, unemployment rates, poverty rates, and
% creative class) are positively or negatively related. These variables were chosen based on their
importance in documenting the economic health of a region (World Bank 2014), and are commonly
used in the regional science literature (Florida 2014; McGranahan, Wojan, and Lambert 2011;
Partridge, Rickman, and Li 2008; Partridge and Rickman 2003).
Moving beyond these simple bivariate tools, a spatial econometric approach is used to model
the relationship between innovation and the four regional-level outcome variables. In particular,
a spatial Durbin error model (SDEM) controls for spatial heterogeneity in the data while also
allowing the user to uncover direct and spillover effects of specific variables of interest (innovation,
in this case). This approach follows the knowledge spillover framework discussed in the literature
review. The formal model is:
yi ¼ Xi β þ WXi θ þ ui (2)
ui ¼ λWui þ εi (3)
where yi is one of the four regional-level economic outcome measures listed above; Xi is a vector of
control variables such as the percentage of residents in specific age categories, rates of education
attainment, racial and ethnic composition, degree of rurality (as measured by the rural-urban
continuum code), various types of economic dependence as defined by ERS (government, manu-
facturing, mining, or farming),9 broadband availability, a ranking of natural amenities, and the
innovation index; W is a spatial weights matrix (a queen contiguity matrix is used in practice); β; θ;
and λ are associated parameter vectors; and εi is the associated zero-mean error term, all for
commuting zone i.
Several recent papers have noted the benefits of this form of spatial specification, in particular that the
direct (β) and spillover (θ) effects of each variable are easy to identify (Vega and Elhorst 2013; LeSage 2014).
Further, while other specifications such as the spatial lag or combined lag/error might allow for a more
generalized spatial approach, there is concern about overparameterization and the difficult justification of
global (as opposed to local) spillovers required for spatial lag and combined lag/error models (Anselin
2003; Lacombe and LeSage 2012). The SDEM approach, alternatively, only includes local spillovers which
are more appropriate for most regional development variables of interest (LeSage 2014). Again, we note
that this approach cannot determine the direction of causality, but does allow for isolation of the
relationship between regional-level innovation and specific economic outcome measures. We also note
that restricting our analysis to CZs with at least 4 observations results in a spatial weight matrix with
‘holes’ – i.e. missing neighbors for some zones. We argue that this does not significantly impact the results
since only a relatively small portion (18%) of CZs lack innovation measures (Bivand and Portnov 2004), but
perform a robustness check using distance-based spatial weights (and ensuring all CZs have neighbors).
4. Results
4.1. Factor analysis results and subsequent innovation index
As section 3.1 discussed, factor analysis was used to reduce the large number of variables potentially
related to innovation into more workable groups that deal with a specific feature. As such, the technique
identified the underlying variable(s) that quantified a specific aspect of innovation. Four specific factors
were identified, consisting of underlying variables ranging from one to six in number (Table 1). Each of
the factors is given a name that relates to the underlying variables it includes. Variables with less than 0.3
factor loadings were excluded from a factor, leaving only the variables shown.10
Factor 1 is named ‘Innovative Accomplishments’ and contains six variables that relate to
businesses actively producing new goods and services and engaging in innovation-related activ-
ities. Factor 2, ‘Intellectual Property,’ contains two variables that focus on the business’ participation
in patents, copyrights, trademarks, and non-disclosure agreements. Factor 3 has only a single factor
relating to the sources that businesses gather their information from, and is named ‘Innovation
Sources.’ Finally, factor 4 is named ‘Customer Focus’ and contains two variables that describe the
effect that customer feedback has on businesses practices.
Once the four factors were constructed and estimated for each observation, they were com-
bined to create the innovation index. To make the analysis more straight-forward, the innovation
index was normalized so that it would take values from 0 to 1. Thus, a higher innovation index
score indicated a higher level of general innovation. Building off of our simple linear innovation
model, we view each of the four factors as being components of basic research. As such, each of
the four factors was weighted evenly. Figure 1 shows that most (92%) of the businesses in the
sample had an innovation index ranking of less than 0.6. The average value was 0.426, and a score
of 0.545 would move a business into the 75th percentile.
The variables that made up the four factors were examined to assess how the individual
component means varied by innovation index quintile. The findings are presented in Table 2. In
general, as the innovation index increased, the component variable means increased. For example,
the percentage of firms who sold new goods earlier than their competitors (sellnewgoodearly) was
Table 1. Factor analysis results.

Index Component Variable Name Rotated Factor Loading
Factor 1: Innovative Accomplishments
Improved goods or services in 2013 Improvedgoods 0.777
New goods or services in the past three years Newgoods 0.757
Sell new goods early or before competitors Sellnewgoodearly 0.663
Growth in the past three years Improv3yrs 0.565
Engage in innovation related activities Innovactivities 0.443
Percentage of sales through new or improved goods Newgoods%sales 0.316
Factor 2: Intellectual Property
If business has participated in patent applications Patentapp 0.682
If this business has any trademarks, copyrights, or NDA’s Trademarks 0.674
Factor 3: Innovation Sources
Sources of new information Newinfo 0.350
Factor 4: Customer Focus
Monitor customer satisfaction Satisfaction 0.463
Impact of customer complaints on business practices Complaintimpact 0.448
6000
5,064
(47%)
5000
4,355
(41%)
Number of Respondents
4000
3000
2000
717
1000
527 (7%)
(5%)
75
(1%)
0
Less than 0.2 0.2 ≤ I.I. < 0.4 0.4 ≤ I.I. < 0.6 0.6 ≤ I.I. < 0.8 0.8 ≤ I.I. ≤ 1.0
Ranges for Innovation Index
Figure 1. Distribution of innovation index.
only 6% for firms with scores in the lowest quintile but rose to 94% for firms with scores in the
highest quintile. Sales from new goods (newgoods%sales) accounted for only 2.3% of all sales for
firms in the lowest innovation index quintile, but were over 34% for firms in the highest. All
variables included in the factor analysis monotonically increase across the quintiles, indicating that
the index captures higher levels of each underlying contributor and providing reassurance that it is
in fact measuring overall ‘innovation.’
Another item of interest is how the innovation index breaks out across industries (2-digit NAICS
codes). Table 3 shows that only the information industry has statistically higher levels of innovation
when compared to the national average, while others (mining, transportation) score significantly
lower. Table 4 takes the discrepancy between metro and non-metro a step further and displays
average innovation scores across the 9-category rural-urban continuum codes (or Beale codes). The
results reinforce that innovativeness is negatively associated with the degree of rurality. In particular,
a sizable drop-off is noted between categories 3 and 4 (note that codes 1–3 are for metropolitan
counties, and 4–9 and for non-metropolitan). While none of the three metropolitan codes has an
index score that is statistically different from the national average, each of the six non-metropolitan
codes is statistically lower. These findings generally agree with those in Wojan and Parker (2017).
Table 2. Factor analysis variables by innovation index (I.I) quintile.

Lowest Highest
I.I < 0.2 0.2 ≤ I.I. < 0.4 0.4 ≤ I.I. < 0.6 0.6 ≤ I.I. < 0.8 0.8 ≤ I.I. < 1.0
Improvedgoods 0.28 1.51 3.17 3.96 4.69
Sellnewgoodearly 0.06 0.29 0.68 0.98 0.94
Newgoods%sales 2.35 8.62 17.42 24.39 34.34
Innovactivities 0.58 2.15 4.19 6.96 8.35
Improv3yrs 1.21 2.89 4.82 6.24 7.39
Patentapp 0.00 0.01 0.05 0.43 0.88
Trademarks 0.14 0.21 0.65 1.93 3.08
Newinfo 3.71 7.36 10.40 12.67 14.14
Newgoods 0.71 1.85 3.82 5.13 5.60
Satisfaction 0.25 0.86 1.44 1.68 1.61
Complaintimpact 0.60 1.27 1.68 1.82 1.91
Table 3. Innovation index by 2-digit NAICS code.

NAICS Code Industry Innovation Index Score S.D. # Obs
21 Mining 0.365 *** 0.011 277
31 Manufacturing – Food & Textile 0.434 0.011 551
32 Manufacturing – Wood & Chemical 0.424 0.010 947
33 Manufacturing – Metal & Machinery 0.431 0.006 1695
42 Wholesale Trade 0.426 0.005 1962
48 Transportation/Warehousing 0.380 ** 0.008 914
51 Information 0.453 *** 0.011 764
52 Finance/Insurance 0.433 0.014 404
54 Professional/Technical Services 0.428 0.005 2558
55 Management of Businesses 0.433 0.010 315
71 Arts/Entertainment 0.413 0.011 333
Overall Average 0.426 0.003 10,719
** and *** denote statistical difference from the overall average at the p < .05 and .01 levels, respectively.
Table 4. Innovation index by rural – urban continuum (Beale) code.

Beale Code Description Innovation Index Score S.D. # Obs
1 Most Urban 0.432 0.005 1753
2 0.426 0.008 739
3 0.427 0.010 332
4 0.409 * 0.004 2077
5 0.401 * 0.005 974
6 0.392 * 0.003 2309
7 0.394 * 0.004 1688
8 0.394 * 0.007 328
9 Most Rural 0.387 * 0.007 520
Overall Average 0.426 0.003 10,719
*denotes statistical difference from the overall average at the p < 0.01 level.
4.2. Firm-level regression results

Table 5 displays the parameter estimates for the explanatory variables, along with their levels of
statistical significance, for the three regression models. Columns 1 and 2 are for the OLS models
with the hourly wage paid to employees as the dependent variable; columns 3 and 4 are for the
logit models with the binary dependent variable for if the market for a firm’s goods/services is
growing; and columns 5 and 6 are for ordered logit models with the dependent variable being the
number of benefits provided to employees. Of note in Table 3 is that columns 1, 3, and 5 contain all
of the independent variables, with columns 2, 4, and 6 excluding the variables for the percentage
of a business’s employees in management, service, and production positions from analysis. The
sample size of the models increases by around 4,000 businesses by eliminating these variables.
The only variable found to have a statistically significant coefficient estimate for all six regression
outputs is i-index, the calculated innovation index score for the businesses in the sample. Additionally, all
of the six coefficient estimates are greater than zero, demonstrating that innovation has a positive
relationship with all three economic outcomes. With respect to hourlywage, the parameter estimate of
around 10 for the innovation index in model (1) indicates that as a firm’s innovation index scores increase
from 0 (the lowest possible value) to 1 (the highest), employees will receive about $10 more in their hourly
wages. More realistically, an increase from the bottom quartile of the innovation index to the top (from 0.2
to 0.6) would suggest a $4.03 increase in the average hourly wage paid.
The interaction term between a firm’s non-metropolitan status and the innovation index score
(nm*i-index) is statistically significant in the OLS models for hourly wage. The two negative parameter
estimates (−8.11 and −5.95) can be interpreted to mean that the effect of the innovation index score on
hourlywage is statistically lower for businesses in non-metropolitan locations. Importantly, the total
‘innovation impact’ for these businesses is still positive, since the sum of the i-index and nm*i-index
parameters is positive. However, the negative result for non-metro implies that innovation’s returns to
Table 5. Firm-level regression results.

Hourlywage Growingmarket Employeebenefitssum
Dependent Variable (1) (2) (3) (4) (5) (6)
i-index 10.08 ** 7.08 ** 2.25 *** 2.27 *** 2.79 *** 2.90 ***
Employment environment
LN(# Employees) −0.46 −0.32 −0.01 −0.02 0.65 *** 0.63 ***
1 temp. employee −0.13 0.53 −0.07 0.02 −0.10 −0.16
2 temp. employees −1.44 0.17 0.07 0.20 −0.41 ** −0.37 **
3+ temp. employees 3.30 ** 2.10 0.21 0.28 * −0.40 ** −0.36 ***
Pmgmt 0.11 *** 0.00 0.01
Pservices −0.02 0.00 0.00
Pprod −0.03 ** 0.00 −0.01 ***
Region
Northeast 4.04 ** 4.04 *** 0.10 0.15 −0.36 * −0.12
South −0.37 −0.34 −0.06 −0.09 −0.40 ** −0.28 **
West 1.44 * 1.40 ** 0.02 0.21 −0.26 −0.15
Midwest (Default)
Industry
Naics21 6.49 ** 2.75 0.75 0.91 * 0.06 1.09
Naics31 1.64 −3.84 *** 0.31 0.17 −0.16 −0.72 ***
Naics32 5.00 *** 0.71 0.87 * 0.36 0.51 0.18
Naics33 5.93 *** 1.10 0.14 −0.21 0.19 0.00
Naics42 3.98 *** 0.37 0.51 0.20 0.15 0.24
Naics48 5.36 *** 0.75 0.83 * 0.29 0.08 −0.19
Naics51 2.36 0.44 0.61 0.32 0.91 ** 0.83 ***
Naics52 2.69 * −0.46 0.40 0.68 * 0.98 ** 1.33 ***
Naics54 9.26 *** 7.08 *** 0.93 ** 0.41 0.71 ** 1.08 ***
Naics55 1.23 −0.24 −0.04 −0.55 −0.23 0.35
Naics71 (Default)
Regional Characteristics
Areaattract −1.43 −0.53 −0.31 ** −0.22 ** 0.11 0.12
Economyvit 0.69 −0.41 −0.37 *** −0.33 *** −0.09 −0.02
Govprograms1 0.35 0.13 0.11 0.27 0.11 0.21 *
Interaction terms
Nm*i-index −8.11 * −5.95 ** 0.65 0.94 * −0.06 0.14
Employment environment
NM*LN(# Employees) 1.37 ** 0.80 * −0.08 −0.06 0.01 0.04
NM*1 temp. employee −0.02 −0.66 0.10 −0.23 0.12 0.05
NM*2 temp. employees 1.19 −0.01 0.27 0.08 0.44 * 0.45 **
NM*3+ temp. employees −2.43 −1.40 −0.05 −0.19 0.42 * 0.31 **
NM*Pmgmt −0.07 ** 0.00 0.00
NM*Pservices 0.00 0.00 0.00
NM*Pprod 0.01 0.00 0.00
Region
NM*Northe*st −3.29 * −3.62 *** −0.19 −0.23 0.29 0.12
NM*South −0.90 −1.043* * 0.10 −0.01 −0.05 −0.24
NM*West −0.50 −0.31 0.45 * 0.05 0.10 −0.05
NM*Midwest (Def*ult)
Industry
NM*Naics31 1.39 1.56 −0.47 −0.49 −0.37 −0.92
NM*Naics32 1.50 1.92 0.33 0.26 −0.73 −0.24
NM*Naics33 −1.10 −1.41 −0.46 −0.16 −1.23 ** −0.82 **
NM*Naics42 −0.46 0.06 0.03 0.26 −0.67 * −0.52 *
NM*Naics48 0.28 −0.45 −0.22 −0.19 −0.12 0.01
NM*Naics51 0.77 0.09 −0.64 −0.08 −0.94 * −0.63 **
NM*Naics52 0.52 −1.93 −0.79 −0.72 * −1.06 ** −0.60 *
NM*Naics54 1.33 0.71 −0.14 −0.72 * 0.58 0.56
NM*Naics55 −3.99 ** −5.44 *** −0.55 −0.05 −0.54 −0.30
NM*Naics71 (Default) 1.41 −0.41 −0.42 0.05 −0.13 −0.07
Regional Characteristics
NM*Areaattract 1.38 0.64 0.31 ** 0.23 * 0.06 0.06
NM*Economyvit −0.89 −0.11 −0.16 −0.20 * 0.06 −0.03
Nmgovprograms1 −0.49 −0.33 0.04 −0.14 0.11 0.02
Constant 7.21 *** 13.31 *** −1.28 ** −0.99 ***
Number of Observations 3,994 7,817 4,443 8,847 4,443 8,615
(Continued)
Table 5. (Continued).
Hourlywage Growingmarket Employeebenefitssum
Dependent Variable (1) (2) (3) (4) (5) (6)
R-squared 0.14 0.11
/cut1 0.09 0.69 **
/cut2 1.37 *** 1.92 ***
/cut3 2.56 *** 3.10 ***
/cut4 3.96 *** 4.40 ***
/cut5 5.55 *** 6.04 ***
/cut6 7.16 *** 7.73 ***
*, **, and *** represent statistical significance at the p < 0.10, 0.05, and 0.01 levels, respectively.
wages are smaller in non-metro areas. Nm*i-index was positive and significant for logit model (4),
indicating that the impact of a high innovation index score is larger for non-metropolitan businesses –
that is, the probability of a firm being involved in a growing market is higher for a specific innovation index
score if the firm is located in a non-metro area.
The other parameter results generally follow expectations, such as the positive impact on wages
for the percentage of employees in management (pmgmt) and the negative impact for the percent
employed in production (pprod). Wages for firms in the Northeast and West were higher than the
default region of the Midwest, and the number of benefits offered was lower for firms in the South.
Several NAICS categories were shown to impact wages (relative to the default of NAICS 71 – arts
and entertainment), although only NAICS 54 (Professional/technical service) was consistently
positive across the three main dependent variables. Interestingly, area attractiveness (areaattract)
and the economic vitality (economyvit) of a region are only significant for the growingmarket
specifications – and are negative. Note, however, that the non-metro interaction term for area
attractiveness is a positive shift that counteracts the original parameters. There is a marginally
statistically significant impact on participation in government programs (govprograms1) for the
number of benefits offered; otherwise no impact of government programs is recorded.
These findings suggest that innovation is highly important for the firm-level outcomes being con-
sidered. The marginal effect of having a high level of innovation was among the highest of all factors
considered for each of the three dependent variables. It is also true that the impact of innovation varies by
non-metropolitan status: the effect on hourly wages is lower, but it increases the likelihood of being in
a growing market.
4.3. Regional-level correlations and regression results

The unit of analysis now shifts from businesses to commuting zones (CZs), which are compiled by
ERS and typically include 3–6 counties. Figure 2 displays CZ-level maps of (1) the innovation index,
(2) unemployment rates, (3) median household income, and (4) poverty rates. Note that CZs
without at least 4 observations from the REIS survey are excluded. The global Moran’s I value for
the innovation index was 0.143 (statistically significant at the p < .01 level).11 Thus, there does seem
to be some degree of spatial autocorrelation in the data; however the global value is not large (by
comparison, the global Moran’s I measures for U.S. unemployment and poverty for the 2011–-
2015 period were 0.597 and 0.491, respectively).
Simple correlations between the innovation index and the four measures of regional economic
activity are displayed in Figure 3. The innovation index is positively correlated with the percentage
employed in creative class occupations12 and median household income, and negatively associated
with unemployment rates and poverty. The relationship with unemployment has a p-value of
0.049; the rest all have p-values less than 0.01. The bivariate Moran’s I calculations in Figure 4
demonstrate that some spillover from innovation may occur, with 3 of the 4 variables having
Innovation Unemployment
Moran’s I = 0.143
942
Moran’s I = 0.597
B. E. WHITACRE ET AL.
MHI Poverty
Moran’s I = 0.466 Moran’s I = 0.491
Figure 2. Maps and Moran’s I values for innovation index, unemployment, median household income, and poverty.
(a) Innovation Index & % Creative Class (b) Innovation Index & Unemployment Rates
r = .284 r = -.084
(c) Innovation Index and Median Household Income (d) Innovation Index & Poverty Rates
r = .259 r = -.221
Figure 3. Correlation coefficients and scatterplots – Innovation Index and regional economic variables of interest(a) Innovation index &
% creative class (b) Innovation index & unemployment rates (c) Innovation index and median household income (d) Innovation index &
poverty rates.
p-values less than 0.01.13 However, these simple statistics do not control for any other variables
such as education or industrial composition, so the analysis moves to spatial regressions.
The SDEM regression results in Table 6 indicate that after controlling for other potentially
influential factors, high levels of innovation have a direct relationship with three of the economic
outcome variables of interest: median household income, poverty levels, and creative class employ-
ment. The income finding is consistent with Wojan and Parker (2017), who found that wage growth
in zones with high levels of nominal innovators were 3% higher during 2010–2014 when compared
to similar zones with non-innovators. However, the only metric that displays evidence of spillovers
from innovation is creative class employment. The W*i-index parameter is only statistically sig-
nificant here, suggesting that CZs can benefit from high levels of innovation in neighboring areas.
Other control variables in the four models generally behave as the literature would suggest. This
includes higher education levels being associated with greater income and creative class employ-
ment (but lower poverty and unemployment rates); higher proportions of residents age 40–60
implying higher income levels but lower poverty levels; and percentage of African-Americans being
associated with lower incomes but higher levels of poverty and unemployment. Economic depen-
dency categories (as defined by ERS) vary in importance across the outcome measures, with CZs
containing counties that are dependent on farming, mining, and manufacturing all seeing higher
income levels and lower poverty rates. Interestingly, broadband availability seems to be important
for 3 of the 4 measures, with access to speeds of at least 25 megabytes per second (MBPS) being
associated with greater income and creative class employment, and lower levels of poverty. The
(a) Innovation Index & % Creative Class (b) Innovation Index & Unemployment Rates
I = .139 I = .010
<.001 =.332
(c) Innovation Index and Median Household Income (d) Innovation Index & Poverty Rates
I = .125
I = -.118
<.001
<.001
Figure 4. Bivariate Moran’s I scatterplots(a) Innovation index & % creative class(b) Innovation index & unemployment rates (c)
Innovation index and median household income(d) Innovation index & poverty rates.
spatial error parameter (λ) is always significant at the p < 0.01 level, and maps/Moran’s I values of
the residuals suggests that the SDEM specification appropriately dealt with the spatial nature of the
data (i.e. there is little evidence of spatial clustering in the residuals). Additional regressions using
nearest neighbor or distance-based spatial weights (to remove observations with no neighbors)
showed no meaningful variation from the results shown here.
5. Conclusion
The aim of this study was to determine if a new, broad measure of business innovation has meaningful
relationships with the economic well-being of U.S. firms and regions. Using a dataset composed of mainly
the Rural Establishment Innovation Survey (REIS), an innovation index is created using factor analysis and
then incorporated into regression models to assess the connection between innovation and firm- and
regional-level outcomes. At the firm level, regression models building on the simple linear theory find that
innovation has a positive relationship with the wages paid to employees, the growth of the market for the
firm’s primary product, and the number of benefits offered to employees. These results provide some
backing for the linear model, particularly since our new measure of innovation is significantly broader than
most previous studies. This is consistent with Balconi, Brusoni, and Orsenigo (2010) argument that the
linear model is still relevant. When an interaction term between the innovation index and a binary variable
Table 6. Spatial durbin error model (SDEM) regression results.

Dependent Variable ln(MHI) Poverty % Creative Class Unemployment
constant 4.043 *** 0.829 *** 0.094 ** 0.186 ***
Innovation
i-index 0.259 *** −0.060 ** 0.035 ** −0.017
W*i-index 0.301 −0.015 0.094 *** 0.037
Rurality/Amenities
RUCC −0.016 *** 0.001 −0.004 *** −0.001 **
amenity_rank 0.005 0.001 0.004 *** 0.004 ***
Education
%highschool 0.476 ** −0.458 *** −0.217 *** −0.145 ***
%somecoll 0.894 *** −0.482 *** −0.119 *** −0.109 ***
%associate 0.907 *** −0.304 *** −0.217 *** −0.069
%bach 2.276 *** −0.844 *** 0.547 *** −0.417 ***
Age
%20–40 0.987 *** −0.008 0.025 0.066 *
%40–60 3.222 *** −0.800 *** 0.333 *** −0.020
Race/Ethnicity
%Black −0.284 *** 0.095 *** −0.016 * 0.076 ***
%Hisp 0.196 *** −0.065 *** −0.040 *** −0.027 **
Economic Dependency
farm_dep 0.128 *** −0.030 *** −0.012 ** −0.012 ***
mining_dep 0.153 *** −0.021 *** 0.000 −0.006 *
manuf_dep 0.039 ** −0.013 ** −0.003 −0.003
govt_dep −0.012 0.008 0.012 *** 0.003
recreation_dep −0.003 −0.003 0.005 0.011 ***
Broadband
%25MBPS_access 0.059 *** −0.022 *** 0.007 ** 0.001
lambda 0.653 *** 0.495 *** 0.368 *** 0.553 ***
# Obs 572 572 572 572
R2 0.805 0.728 0.881 0.680
*, **, and *** represent statistical significance at the p < 0.10, 0.05, and 0.01 levels, respectively
indicating non-metropolitan status is included, both negative and positive effects are found. Innovation’s
relationship with the hourly wage paid to employees is smaller in non-metropolitan counties (although
still positive overall); conversely, innovation’s effect on the probability of a firm’s products being in
a growing market is greater for firms in non-metropolitan counties.
With respect to the CZ level regional analyses, simple correlations show that innovation is positively
associated with several measures of economic outcomes; the relationship holds after control variables are
included. It is important to note that some degree of spatial autocorrelation appears to exist for
innovation: a map of the mean innovation index scores across CZs demonstrates a statistically significant
Moran’s I coefficient. Correlations are seen between innovation and the four measures of regional
economic prosperity, and are confirmed with bivariate Moran’s I estimates. The SDEM models (which
follow a knowledge spillover framework) find that innovation has a positive relationship with the median
household income and the percentage of employees in the creative class, and a negative relationship with
poverty. There is evidence that spillovers can exist from innovation, as CZs that are neighbors to areas with
high levels of innovation appear to experience higher levels of creative class employees than would be
expected. This result adds a U.S. context to the existing body of literature examining innovation spillovers
(Asheim and Coenen 2005; Cornett 2009; Albert 2017). Community and regional developers should be
aware of the wide variety of positive economic outcomes associated with a broad measure of firm-level
innovation.
There are several limitations worth mentioning. The primary one, noted throughout, is that no firm
statements can be made about the direction of causality. The REIS data is purely cross-sectional, so teasing
out causal relationships in the firm-level models by following specific firms over time was not possible.
Future research should test whether innovation is truly an exogenous explanatory variable, or if firm/
economic well-being instead act as a driver of innovation. To deal with this possible endogeneity, a two-
stage least squares (2SLS) approach might be implemented using an appropriate instrument. A proper
instrument in this case would be one that is associated with innovation, but not the economic outcome
measures. Additionally, while our construction of the index assumes that the four underlying factors
represent distinct approaches to innovation, an alternative framework might consider that one or more
factors serve as precursors to another. We leave this as an avenue for future research. A final limitation is
that the firm-level models only deal with three specific output measures available in the REIS – all of which
are self-reported. Other outcome measures, such as overall profitability or employee satisfaction, would be
useful.
Even with these limitations, the analysis has important policy implications across two general
dimensions. First, the types of innovation supported by federal, state, and local initiatives should
not focus solely on traditional avenues such as formal research and development or patent-
oriented programs. Formal U.S. innovation policy is quite diverse, but major programs such as
the Small Business Innovation Research (SBIR) dominate expenditures at the national level (Shapira
and Youtie 2010). Such programs often emphasize technology development and use, which is
commonly tied to customary types of innovation activity. This research has shown that defining
innovation in a broader context (with activities more typical of many small businesses) is still
associated with positive impacts for both firm-level and regional-level economic measures. Thus,
future policies should consider how to promote several of the specific factors in the ‘innovation
index.’ For example, incentivizing firms to develop new sources of information (Factor 3 in Table 1),
or implement methods for assessing/using customer satisfaction (Factor 4) are two explicit ways
that could promote the non-traditional version of innovation espoused here. Regional policy
efforts, including state-level initiatives, may be more effective at helping businesses develop
these more comprehensive innovation-oriented procedures.
Second, the research here provides insights about policy efforts in rural versus urban areas. The firm-
level results suggest that urban areas benefit more from innovation in terms of wages paid (similar to the
finding in Rodriguez-Pose and Crescenzi 2008); however, a rural advantage exists for market growth.
Therefore, regional innovation policies that are geared towards improving wages may find more success
in more urban locations, while those focused on growing a specific market might accomplish more in
relatively peripheral areas. This is not to suggest that rural or urban innovation policies should prioritize
one outcome over another, rather that policymakers should be aware of the potentially differing impacts
across geographies. Finally, the regional-level analysis suggests that innovation spillovers exist for creative
employment, which has been shown to be particularly relevant for rural economic growth (McGranahan,
Wojan, and Lambert 2011). Thus, innovation investments in core locations may see benefits accrue to the
surrounding rural areas. However, our results suggest that expectations for such spillover effects should be
limited, given the lack of meaningful relationships with nearby income levels, poverty rates, or unemploy-
ment rates.
Notes
1. Tradable industries are defined as those in the mining (NAICS code 21), manufacturing (31–33), wholesale
trade (42), transportation and warehousing (48), information (51), finance and insurance (52), professional/
technical services (54), management of businesses (55), and arts/entertainment (71).
2. This attempt at measuring innovation with the REIS survey differs from the methodology used by Wojan and
Parker (2017), who differentiate between 3 categories of innovators (non/nominal/substantive) by using latent
class analysis on 8 specific REIS questions.
3. A reviewer notes concern that some factors may be considered consequences of, rather than inputs to,
innovation. However, the wording of each specific question generally connote the business’ approach to
innovation. Further, we view the specific items noted in each question as potential inputs to the simple linear
innovation model, where they are seen as components of basic research. As such, we believe that they are
appropriate to use as variables in the factor analysis.
4. As noted in Kaiser (1974), a KMO score in the 0.90’s is deemed ‘marvelous’, a score in the 0.80’s is ‘meritorious’,
a score in the 0.70’s is ‘middling’, a score in the 0.60’s is ‘mediocre’, a score in the 0.50’s is ‘miserable’, and
a score below 0.50 is ‘unacceptable.’
5. The ‘predict’ command in STATA performs this task. Although most of our variables are ordinal, we did not use
a polychoric correlation matrix to smooth our variables. This is because the bias associated with using ordinal
variables in PCA has been shown to be small with symmetric and unimodal data (Olsson 1979; Rigdon and
Ferguson 1991). 12 of our 15 variables have skewness coefficients between −0.5 and 0.5. Our large sample size
(10,000 observations) also reduces concerns about bias.
6. Wojan and Parker (2017) also use commuting zones for their analysis.
7. 2011–2015 5-year American Community Survey (ACS) data was used to match the 2014 Business Innovation
Survey.
8. The bivariate Moran’s I calculates the relationship between one variable and neighboring values for a different
variable. It also ranges from −1 to 1, with a positive and significant relationship implying that high values of
variable 1 are surrounded by high values for variable 2.
9. ERS defines these types of counties based on the industry’s percentage of total earnings or employment. The
percentages vary by industry (ERS, 2017).
10. Low factor loadings indicate that the variable is not highly correlated with that particular factor. Note that
all of the factor loadings in Table 2 are > 0.3. The four questions listed in Appendix A that were excluded
from the final factors were Q28 (ABANDONED), Q34 (EXTRACASH), Q38 (RECESSION) and Q39
(INCREASE13).
11. Moran’s I is a measure from −1 to 1 with 0 representing a purely random spatial distribution and 1
representing complete spatial autocorrelation (where a county’s value depends entirely on its neighbors).
12. USDA-ERS (2014) defines the creative class as those employed in ‘creative’ occupations, specifically occupa-
tions ‘developing, designing, or creating new applications, ideas, relationships, systems, or products, including
artistic contributions.’
13. See Footnote 8 for a definition of the bivariate Moran’s I. The positive and significant values here suggest that
regions with high (low) values of variable 1 are surrounded by high (low) values of variable 2.
Disclosure statement
No potential conflict of interest was reported by the authors.
Funding
This work was supported by the Economic Research Service [5464-MSU-USDA-0095].
References
Acs, Z., and D. Audretsch. 1988. “Innovation in Large and Small Firms: An Empirical Analysis.” The American Economic
Review 78 (4): 678–690.
Ahlstrom, D. 2010. “Innovation and Growth: How Business Contributes to Society.” Academyof Management Journal 24
(3): 11–24.
Albert, M. 2017. “Entrepreneurship, Innovation, and Regional Performance: Application for the Spanish Regions.”
Entrepreneurship & Regional Development 29 (3–4): 271–291. doi:10.1080/08985626.2016.1267805.
Anselin, L. 2003. “Spatial Externalities, Spatial Multipliers, and Spatial Econometrics.” International Regional Science
Review 26 (2): 153–166. doi:10.1177/0160017602250972.
Asheim, B. T., and A. Isaksen. 2002. “Regional Innovation Systems: The Integration of Local ‘Sticky’and Global
‘Ubiquitous’ Knowledge.” The Journal of Technology Transfer 27 (1): 77–86. doi:10.1023/A:1013100704794.
Asheim, B. T., and L. Coenen. 2005. “Knowledge Bases and Regional Innovation Systems: Comparing Nordic Clusters.”
Research Policy 24: 1173–1190. doi:10.1016/j.respol.2005.03.013.
Audretsch, D. B., and M. P. Feldman. 1996. “R&D Spillovers and the Geography of Innovation and Production.” The
American Economic Review 86 (3): 630–640.
Balconi, M., S. Brusoni, and L. Orsenigo. 2010. “In Defence of the Linear Model: An Essay.” Research Policy 39 (1): 1–13.
doi:10.1016/j.respol.2009.09.013.
Becker, S. O., and P. H. Egger. 2013. “Endogenous Product versus Process Innovation and a Firm’s Propensity to
Export.” Empirical Economics 44 (1): 329–354. doi:10.1007/s00181-009-0322-6.
Bivand, R., and B. Portnov. 2004. “Exploring Spatial Data Techniques Using R: The Case of Observations with No
Neighbours.” In Advances in Spatial Econometrics: Methodology, Tools, and Applications, (pp. 121-142). Springer,
Berlin, Heidelberg..
Bonfiglio, A., B. Camaioni, S. Coderoni, R. Esposti, F. Pagliacci, and F. Sotte. 2017. “Are Rural Regions Prioritizing
Knowledge Transfer and Innovation? Evidence from Rural Development Policy Expenditure across the EU Space.”
Journal of Rural Studies 53: 78–87. doi:10.1016/j.jrurstud.2017.05.005.
Cornett, A. P. 2009. “Aims and Strategies in Regional Innovation and Growth Policy: A Danish Perspective.”
Entrepreneurship & Regional Development 21 (4): 399–420. doi:10.1080/08985620903020078.
Crowley, F., and J. Bourke. 2018. “The Influence of the Manager on Firm Innovation in Emerging Economies.”
International Journal of Innovation Management 22 (3): 1850028. doi:10.1142/S1363919618500287.
ERS (Economic Research Service). 2016. “Commuting Zones and Labor Market Areas.” https://www.ers.usda.gov/data-
products/commuting-zones-and-labor-market-areas/
Esparcia, J. 2014. “Innovation and Networks in Rural Areas. An Analysis from EuropeanInnovative Projects.” Journal of
Rural Studies 34: 1–14. doi:10.1016/j.jrurstud.2013.12.004.
European Commission. 2014. Smart Specialisation and Europe’s Growth Agenda. Publications Office of the European
Union. Publications Office of the European Union. http://ec.europa.eu/regional_policy/sources/docgener/studies/
pdf/smart_spec_growth_agenda.pdf
Fagerberg, J., and M. Srholec. 2008. “National Innovation Systems, Capabilities, and EconomicDevelopment.” Research
Policy 37: 1417–1435. doi:10.1016/j.respol.2008.06.003.
Florida, R. 2014. “The Creative Class and Economic Development.” Economic Development Quarterly 28 (3): 196–205.
doi:10.1177/0891242414541693.
Fritsch, M., and G. Franke. 2004. “Innovation, Regional Knowledge Spillovers and R&D Cooperation.” Research Policy 33:
245–255. doi:10.1016/S0048-7333(03)00123-9.
Fritsch, M., and M. Meschede. 2001. “Product Innovation, Process Innovation, and Size.” Review of Industrial
Organization 19 (3): 335–350. doi:10.1023/A:1011856020135.
Fruchter, B. 1954. Introduction to Factor Analysis. NY: D. Van Nostrand .
Godin, B. 2005. “The Linear Model of Innovation: The Historical Construction of an Analytical Framework.” Working
paper. http://www.csiic.ca/PDF/Godin_30.pdf
Gonzalez, J. L., A. Jung, and I. Pena. 2015. “Innovation-Driven Entrepreneurship in Developing Economies.”
Entrepreneurship & Regional Development 27 (9–10): 555–573. doi:10.1080/08985626.2015.1075602.
Heunks, F. J. 1996. “Innovation, Creativity, and Success.” Small Business Economics 10: 263–272. doi:10.1023/
A:1007968217565.
Isaksen, A., and K. Onsager. 2010. “Regions, Networks, and Innovative Performance: The Case of Knowledge-Intensive
Industries in Norway.” European Urban and Regional Studies 17 (3): 227–243. doi:10.1177/0969776409356217.
Jaffe, A. 1986. “Technological Opportunity and Spillovers of R&D: Evidence from Firms’ Patents, Profits, and Market
Share.” American Economic Review 76: 984–1001.
Kaiser, H. 1974. “An Index of Factor Simplicity.” Psychometrika 39: 31–36. doi:10.1007/BF02291575.
Keeble, D. 1993. “Small Firm Creation, Innovation, and Growth and the Urban-Rural Shift.” In Small Firms in Urban and
Rural Locations, edited by J. Curran and D. Storey, 54–78. London: Routledge.
Kline, S.J., and N. Rosenberg, . 1986. The Positive Sum Strategy: Harnessing Technology for Economic Growth. USA: The
National Academy of Science.
Lacombe, D., and J. LeSage. 2012. “Using Bayesian Posterior Model Probabilities to Identify Omitted Variables in
Spatial Regression Models.” Available at SSRN: http://ssrn.com/abstract=2174610
Landabaso, M. 1997. “The Promotion of Innovation in Regional Policy: Proposals for a Regional Innovation Strategy.”
Entrepreneurship & Regional Development 9 (1): 1–24. doi:10.1080/08985629700000001.
LeSage, J. 2014. “What Regional Scientists Need to Know about Spatial Econometrics.” The Review of Regional Studies
44 (1): 13–32.
Maclaurin, W. 1953. “The Sequence from Invention to Innovation and Its Relation to Economic Growth.” Quarterly
Journal of Economics 67: 97–111. doi:10.2307/1884150.
McCann, P., and J. Simonen. 2005. ““Innovation, Knowledge Spillovers and Local Labor Markets.” Papers in Regional
Science 84 (3): 465–485. doi:10.1111/j.1435-5957.2005.00036.x.
McGranahan, D., D. Wojan, and D. Lambert. 2011. “The Rural Growth Trifecta: Outdoor Amenities, Creative Class, and
Entrepreneurial Context.” Journal of Economic Geography 11 (3): 529–557. doi:10.1093/jeg/lbq007.
Michael, S. C., and J. A. Pearce II. 2009. “The Need for Innovation as a Rationale for Government Involvement in
Entrepreneurship.” Entrpreneurship & RegionalDevelopment 21 (3): 285–302.
Mone, M. A., W. McKinley, and V. L. Barker. 1998. “Organizational Decline and Innovation: A Contingency Framework.”
Academy of Management Review 23: 115–132. doi:10.5465/amr.1998.192965.
Moore, D., K. Miller, and D. Vakoch. 2015. “National Survey of Business Competitiveness.” Washington State University
Social & Economic Sciences Research Center Data Report, 14–56.
Morgan, K. 1997. “The Learning Region: Institutions, Innovation, and Regional Renewal.” Regional Studies 31: 491–503.
doi:10.1080/00343409750132289.
NESTA(National Endowment for Science, Technology and the Arts). 2009. “The Innovation Index: Measuring the UK’s
Investment in Innovation and Its Effects.” https://www.nesta.org.uk/sites/default/files/innovation_index_2009.pdf
OECD (Organization for Economic Cooperation and Development). 1992, 1996, 2005. Oslo Manual: Guidelines for
Collecting and Interpreting Innovation Data.
Olsson, U. 1979. “On the Robustness of Factor Analysis against Crude Classification of the Observations.” Mutivariate
Behavioral Research 14: 485–500. doi:10.1207/s15327906mbr1404_7.
Partridge, M., and D. Rickman. 2003. “Do We Know Economic Development When We See It?.” The Review of Regional
Studies 33 (1): 17–39.
Partridge, M., D. Rickman, and H. Li. 2008. “Who Wins from Local Economic Development? A Supply Decomposition of
U.S. County Employment Growth.” Economic Development Quarterly 23 (1): 13–27. doi:10.1177/0891242408322314.
Pezeshkan, A., A. Smith, S. Fainshmidt, and A. Sedeh. 2016. “National Business Systems and FirmInnovation: A Study of
Developing Economies.” Journal of Business Research 69: 5413–5418. doi:10.1016/j.jbusres.2016.04.147.
Rigdon, E., and C. Ferguson. 1991. “The Performance of the Polychoric Correlation Coefficient and Selected Fitting
Functions in Confirmatory Factor Analysis with Ordinal Data.” Journal of Marketing Research 28 (4): 491–497.
doi:10.1177/002224379102800412.
Rodriguez-Pose, A., and R. Crescenzi. 2008. “Research and Development, Spillovers, Innovation Systems, and the
Genesis of Regional Growth in Europe.” Regional Studies 42 (1): 51–67. doi:10.1080/00343400701654186.
Roper, S., C. Hales, J. Bryson, and J. Love 2009. “Measuring Sectoral Innovation Capability in Nine Areas of the UK
Economy.” Report for NESTA Innovation Index project. https://www.nesta.org.uk/sites/default/files/measuring-
sectoral-innovation.pdf
Roper, S., J. Du, and J. Love. 2008. “Modelling the Innovation Value Chain.” Research Policy 37 (6–7): 961–977.
doi:10.1016/j.respol.2008.04.005.
Rosenbusch, N., J. Brinckmann, and A. Bausch. 2011. “Is Innovation Always Beneficial? A Meta-Analysis of the
Relationship between Innovation and Performance in SMEs.” Journal of Business Venturing 26 (4): 441–457.
doi:10.1016/j.jbusvent.2009.12.002.
Rubera, G., and A. H. Kirca. 2012. “Firm Innovativeness and Its Performance Outcomes: A Meta-Analytic Review and
Theoretical Integration.” Journal of Marketing 76 (3): 130–147. doi:10.1509/jm.10.0494.
Schumpeter, J. A. 1934. The Theory of Economic Development. Cambridge, MA: Harvard University Press. Original
German Edition 1911.
Schumpeter, J. A. 1942. Capitalism, Socialism and Democracy. London: Routledge.
Shapira, P., and J. Youtie. 2010. “The Innovation System and Innovation Policy in the United States.” In Competing for
Global Innovation Leadership: Innovation Systems and Policies in the USA, EU, and Asia, edited by Frietsch and
Schuller, 5–29. Stuttgart: Fraunhofer IRB Verlag.
Shearmur, R., and N. Bonnet. 2011. “Does Local Technological Innovation Lead to Local Development? A Policy
Perspective.” Regional Science Policy and Practice 3 (3): 249–270. doi:10.1111/j.1757-7802.2011.01040.x.
Simonetti, R., D. Archibugi, and R. Evangelista. 1995. “Product and Process Innovations: How are They Defined? How
are They Quantified?.” Scientometrics 32 (1): 77–89. doi:10.1007/BF02020190.
Sonn, J., and M. Storper. 2008. “The Increasing Importance of Geographical Proximity in Technological Innovation: An
Analysis of U.S. Patent Citations 1975-1997.” Environment and Planning A 40 (5): 1020–1039. doi:10.1068/a3930.
Srinivandasan, S., K. Pauwels, J. Silva-Risso, and D. M. Hanssens. 2009. “Product Innovations, Advertising, and Stock
Returns.” Journal of Marketing 73 (1): 24–43. doi:10.1509/jmkg.73.1.24.
U.S. Department of Agriculture. 2014 Creative Class County Codes. Economic Research Service, October 2017. https://
www.ers.usda.gov/data-products/creative-class-county-codes/documentation/
Utterback, J. M., and W. J. Abernathy. 1975. “A Dynamic Model of Process and Product Innovation.” Omega 3 (6):
639–656. doi:10.1016/0305-0483(75)90068-7.
Vega, S., and J. P. Elhorst. 2013. “On Spatial Econometric Models, Spillover Effects, and W.” Paper presented at the 53rd
ERSA Conference, Palermo.
Wojan, T., and T. Parker. 2017. Innovation in the Rural Nonfarm Economy: Its Effect on Job and Earnings Growth, 2010-
2014. ERR-238, U.S. Department of Agriculture, Economic Research Service.
World Bank. 2014. World Development Indicators. Washington, DC: World Bank. doi:10.1596/978- 1-4648-0163-1
Appendix A. Variables included in factor analysis
Means
Index Component Variable Name Mean Min Max Metro Non-Metro
Sources of new information Newinfo 9.22 0 18 9.29 8.82 ***
Monitor customer satisfaction Satisfaction 1.18 0 2 1.19 1.11 ***
Impact of customer complaints on business practices Complaintimpact 1.49 0 2 1.49 1.46 *
New goods or services in the past three years Newgoods 3.25 0 6 3.33 2.82 ***
Abandoned or incomplete innovation activities Abandoned 0.56 0 2 0.58 0.44 ***
Improved goods or services in 2013 Improvedgoods 2.58 0 5 2.61 2.37 ***
Sell new goods early or before competitors Sellnewgoodearly 0.55 0 1 0.56 0.50 ***
Percentage of sales through new or improved goods Newgoods%sales 14.71 −5 100 15.02 12.67 ***
Engage in innovation-related activities Innovactivities 3.71 0 10 3.80 3.15 ***
If extra cash is spent on innovation or investments Extracash 2.32 0 4 2.32 2.30
If business has participated in patent applications Patentapp 0.08 0 1 0.08 0.05 ***
If this business has any trademarks, copyrights, or NDA’s Trademarks 0.62 0 4 0.66 0.35 ***
Innovation during economic recession Recession −0.15 −1 1 −0.14 −0.17
Has innovation increased since 2013 Increase13 0.23 −1 1 0.24 0.16 ***
Growth in the past three years Improv3yrs 4.08 0 9 4.13 3.80 ***
*, **, and *** denote statistical differences between the metro and non-metro means at the p < .10, .05, and .01 levels,
respectively.
The specific questions asked in the REIS are listed below.

The specific innovation-related questions in REIS used to construct the innovation index are:
NEWINFO – Sources of New Information

(Mean = 9.22, range = 0-18)
Q. 18. Businesses obtain information about new opportunities or new ways of doing things from many sources. Which
sources have been most valuable for this firm?
Sources of new information:
(0 = Not at all valuable, 1= Somewhat valuable, 2 = Very valuable)
– Suppliers
– Customers
– Other business people in your industry
– Other business people NOT in your industry
– Business or trade association conferences or publications
– Your own workers
– Media (e.g. newspapers, television, Internet)
– Private consultants
– University extension, community colleges, or business schools
SATISFACTION – Monitor Customer Satisfaction

(Mean = 1.18, range = 0-2)
Q. 25. How often does this business monitor customer satisfaction through analysis of complaints, customer satisfac-
tion surveys, focus groups, or other methods?
___(0)___ Never ___(1)___ Occasionally ___(2)___ Regularly
COMPLAINTIMPACT – Impact of Customer Complaints on Business Practices

(Mean = 1.49, range = 0-2)
Q. 26. How often are processes changed to fix problems identified through customer complaints?
___(0)___ Never ___(1)___ Occasionally ___(2)___ Regularly
NEWGOODS – New goods or services in the past 3 years

(Mean = 3.25, range = 0-6)
Q. 27. In the past 3 years, did this business . . .

(Yes = 1 for each)
– Produce any new or significantly improved goods?
– Produce any new or significantly improved services?
– Introduce new or significantly improved methods of manufacturing or producing goods or services?
– Introduce new or significantly improved logistics, delivery, or distribution methods for your inputs, goods, or
services?
– Introduce new or significantly improved support activities for your processes?
– Introduce new or significant improvements in your marketing methods?
ABANDONED – Abandoned or incomplete innovation activities

(Mean = 0.56, range = 0-2)
Q. 28. In the past 3 years, did this business have any improvement or innovation activities that were . . .
(Yes = 1 for each)
– Abandoned
– Incomplete
IMPROVEDGOODS – Improved goods or services in 2013

(Mean = 2.58, range = 0-5)
Q. 30. In 2013, did this business sell any new or significantly improved services with the following improvements?
(Yes = 1 for each)
– Improved performance
– More user-friendly
– Reduced costs
– New features
– New service capabilities
SELLNEWGOODEARLY- Sell new goods or services before competitors

(Mean = 0.55, range = 0-1)
Q. 31. In the past 3 years, did this business start selling any new or significantly improved goods or services before
your competitors in at least one of your markets (Include a product even if it was available in another market).
(Yes = 1)
NEWGOOD%SALES – Percentage of sales from new or improved goods

(Mean = 14.71, range = −5 – 100)
Q. 32. In 2013, what percent of this business’s sales came from new or significantly improved goods or services? ([If
note, enter 0 (zero).]
________ percent of sales
INNOVACTIVITIES – Engage in innovation-related activities

(Mean = 3.71, range = 0-10)
Q. 33. In the past 3 years, did this business engage in any of the following innovation-related activities?
(Yes = 1 for each)
– In-house research and development (R&D) to increase knowledge or devise innovations
– Purchase research and development (R&D) from research organizations or other branches of this business
– Conduct in-house design activities to improve aesthetics of product or packaging
– Purchase design services
– Purchase machinery, equipment, computers, or software to implement innovations
– Purchase or license patents or inventions to implement innovations
– Purchase knowledge or expertise to implement innovations
– Plan, engineer, design, or conduct other development work to implement innovations
– Train staff to develop or introduce innovations
– Market research, advertising, or other marketing activities linked to implementing innovations
EXTRACASH – Extra cash spent on innovation or investments

(Mean = 2.32, range = 0 – 4)
Q. 34. In the current environment, if excess cash were available, how likely is it that these funds would be used to . . .
(‘Probably’ = 1, ‘Most definitely’ = 2)
– Fund additional innovation projects
– Fund additional investment projects, such as replacing old equipment or for expansion
PATENTAPP- Business participated in patent applications

(Mean = 0.08, range = 0-1)
Q. 36. In the past 3 years, did this business participate in any patent applications?
(Yes = 1)
TRADEMARKS – Trademarks, copyright, non-disclosure agreements

(Mean = 0.62, range = 0-4)
Q. 37. In the past 3 years, did this business . . .
(Yes = 1 for each)
– Register an industrial design
– Register a trademark
– Produce materials eligible for copyright
– Use trade secret protections (e.g., non-disclosure agreements, non-compete clauses, or sought remedies for
misappropriation)
RECESSION – Innovate during recession

(Mean = −0.15, range = −1 – 1)
Q. 38. During the economic recession period (2008-2009), to what extent did this business commit resources to
innovate?
– Increased resources for innovation (1)
– There was no change in innovation resources (0)
– Delayed or decreased resources (−1)
INCREASE13 – Innovation increased since 2013

(Mean = 0.23, range = −1 – 1)
Q. 39. Compared to 2013, in this current year (2014) would you say resources for innovation at this business have
been:
– Increased (1)
– Kept the same (0)
– Decreased (−1)
IMPROV3YRS – Growth in the past 3 years

(Mean = 4.08, range – 0-9)
Q. 40. In the past 3 years, has this business . . .
(Yes = 1 for each)
– Increased the variety of goods or services offered
– Increased market share or entered new markets
– Begun exporting goods or services
– Reduced time to respond to customer needs
– Improved flexibility of production or service provision
– Increased capacity of production or service provision
– Reduced labor costs per unit output
– Reduced materials and energy required per unit output
– Improved worker satisfaction or reduced worker turnover.

Firm and Regional Economic Outcomes Associated With A New Broad Measure of Business Innovation

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Firm and Regional Economic Outcomes Associated With A New Broad Measure of Business Innovation

Uploaded by

Copyright:

Available Formats

Entrepreneurship & Regional Development

ISSN: 0898-5626 (Print) 1464-5114 (Online) Journal homepage: https://www.tandfonline.com/loi/tepn20

Firm and regional economic outcomes associated

Brian E. Whitacre, Devon Meadowcroft & Roberto Gallardo

To link to this article: https://doi.org/10.1080/08985626.2019.1630486

Published online: 13 Jun 2019.

Submit your article to this journal

Article views: 300

View related articles

View Crossmark data

Citing articles: 1 View citing articles

Full Terms & Conditions of access and use can be found at

Firm and regional economic outcomes associated with a new,

ABSTRACT ARTICLE HISTORY

CONTACT Brian E. Whitacre brian.whitacre@okstate.edu Department of Agricultural Economics, Oklahoma State

2.2. Innovation and ﬁrm/regional economic outcomes

3. Data and methods

3.1. Factor analysis and construction of an ‘innovation index’

3.2. Firm-level regressions

- hourly wage paid to employees (hourlywage),

3.3. Regional-level economic outcomes

Table 1. Factor analysis results.

Figure 1. Distribution of innovation index.

Table 2. Factor analysis variables by innovation index (I.I) quintile.

Table 3. Innovation index by 2-digit NAICS code.

Table 4. Innovation index by rural – urban continuum (Beale) code.

4.2. Firm-level regression results

Table 5. Firm-level regression results.

4.3. Regional-level correlations and regression results

Table 6. Spatial durbin error model (SDEM) regression results.

Appendix A. Variables included in factor analysis

The speciﬁc questions asked in the REIS are listed below.

NEWINFO – Sources of New Information

SATISFACTION – Monitor Customer Satisfaction

COMPLAINTIMPACT – Impact of Customer Complaints on Business Practices

NEWGOODS – New goods or services in the past 3 years

Q. 27. In the past 3 years, did this business . . .

ABANDONED – Abandoned or incomplete innovation activities

IMPROVEDGOODS – Improved goods or services in 2013

SELLNEWGOODEARLY- Sell new goods or services before competitors

NEWGOOD%SALES – Percentage of sales from new or improved goods

INNOVACTIVITIES – Engage in innovation-related activities

EXTRACASH – Extra cash spent on innovation or investments

PATENTAPP- Business participated in patent applications

TRADEMARKS – Trademarks, copyright, non-disclosure agreements

RECESSION – Innovate during recession

INCREASE13 – Innovation increased since 2013

IMPROV3YRS – Growth in the past 3 years

You might also like