REGIONAL INNOVATION SYSTEMS AS THE KEY TO GLOBAL COMPETITIVENESS: IMPLICATIONS FOR RURAL AREAS AND WORKERS by David Barkley and Mark S. Henry, Professors and Santosh Nair, Research Associate Department of Applied Economics & Statistics Clemson University

The Global Economy The Knowledge Economy The High-Tech Economy The New Economy Changes in Technology Changes in Production Practices Changes in Location of Economic Activity Changes in the Demand for Labor Regional Innovation Systems  Research Triangle Park, (NC)  International Center for Automotive Research (SC)  Scripps Institute East Coast Facility (FL)  Translational Genomics Research Institute (AZ)  Oregon Nanotechnology & Microtechnologies Institute  Stowers Institute for Medical Research (MO/KN)

Table 1. Summary Characteristics of the “Old” and “New” Economies Old Economy Oligopolistic Product Markets New Economy Rapidly Expanding Service Sector Large-Scale ManufacturingIntense International Competition Standardized ProductsSmall-Batch Production Runs Assembly Line ProductionJust-In-Time Inventory Replacement Vertically Integrated FirmsProduct Specialization Long Product Life CyclesRobotics Separability of ActivitiesComputer-Integrated manufacturing Information and Communication Technologies Vertically Disintegrated Firms

Table 2. Employment Change by Industry, Metro Vs. Nonmetro, Percentage Change in Employment U. S. South Metro Nonmetro Metro Nonmetro Total 20.0% 17.6%28.3%17.1% Farm Construction Manufacturing Trans. & Pub. Utilities Wholesale Trade Retail Trade Fin., Ins., and R. E Services Government Federal Civilian Military State & Local Source: BEA, REIS.

Industry A. Growing Industries Employment Change (000) Percent Change Retail trade2, Employment services1, State and local government education1, Food services and drinking places1, Offices of health practitioners1, Construction1, Educational services Ambulatory health care services except offices of health practitioners State and local general government, n.e.c Wholesale trade Source: Berman, 2004 Table 3. Industries with the Largest Wage and Salary Employment Growth and Declines,

Industry B. Declining Industries Employment Change (000) Percent Change Agricultural products Cut and sew apparel manufacturing Aerospace product and parts manufacturing Semiconductor and other electronic component manufacturing Computer and peripheral equipment manufacturing Fabric mills Navigational, measuring, electromedical, and control instruments manufacturing Private households Textile and fabric finishing and fabric coating mills Pulp, paper and paperboard mills Table 3. Industries with the Largest Wage and Salary Employment Growth and Declines, (cont.) Source: Berman, 2004

Table 4. Average Wages in Expanding and Contracting Industries, Expanding Industries Contracting IndustriesDifference South Atlantic Delaware$28,407$49, % Maryland 32,535 48, % Dist. Of Columbia 42,413 62, % Virginia 29,375 46, % West Virginia 22,805 33, % North Carolina 33,926 38, % South Carolina 31,012 36, % Georgia 34,418 44, % Florida 29,979 35, %

Expanding Industries Contracting IndustriesDifference East South Central Kentucky $29,035 $37, % Tennessee , % Alabama 28,584 36, % Mississippi 26,764 30, % Table 4. Average Wages in Expanding and Contracting Industries, (cont.)

Expanding Industries Contracting IndustriesDifference West South Central Arkansas 27,256 31, % Louisiana 26,408 39, % Oklahoma 25,259 35, % Texas 31,663 48, % United States$35,410$44, % Source: Economic Policy Institute, Table 4. Average Wages in Expanding and Contracting Industries, (cont.)

Table 5. Employment Distribution and Change by Occupation, South and U.S., Shares (1999) % Change Occupation U. S. South U. S. South Officials and Managers 10.5% 10.0%1.7%2.1% Professionals Technicians Sales Workers Office and Clerical Workers Craft Workers Operatives Laborers Service Workers Total Source: The U.S. Equal Employment Opportunity Commission.

Table 6. Occupations with Largest Job Decline, United States, Occupation Quartile Rank by 2002 Median Income Typical Source of Education or Training 1. Farmers and ranchers3Long-term on-the-job training 2. Sewing machine operators4Moderate-term on-the-job training 3. Word processors and typists3Moderate-term on-the-job training 4. Stock clerks and order fillers4Short-term on-the-job training 5. Secretaries, except legal, medical, and executive 3Moderate-term on-the-job training 6. Electrical and electronic equipment 3Short-term on-the-job training 7. Computer operators2Moderate-term on-the-job training 8. Telephone operators 9. Postal service mail sorters, processors, and processing machine operators 10. Loan interviewers and clients Moderate-term on-the-job training Short-term on-the-job training Source: Hecker, 2004

Table 6. Occupations with Largest Job Decline, United States, (cont.) Occupation Quartile Rank By 2002 Median Income Typical Source of Education or Training 11. Data entry keyers3Moderate-term on-the-job raining 12. Telemarketers4Short-term on-the-job training 13. Textile knitting and weaving machine setters, operators, and lenders 3Long-term on-the-job training 14. Textile winding, twisting, and drawing out machine setters, operators, and lenders 3Moderate-term on-the-job training 15. Team assemblers3Moderate-term on-the-job training 16. Order clerks3Short-term on-the-job training 17. Door-to-door sales workers, news and and street vendors, and retail workers 3Short-term on-the-job training 18. Travel agents3Postsecondary vocational award 19. Brokerage clerks2Moderate-term on-the-job training 20. Eligibility interviewers, government programs 2Moderate-term on-the-job training Source: Hecker, 2004

Table 7. Occupations with Largest Job Growth, United States, Occupation Quartile Rank By 2002 Median Earnings Typical Source Of Education Or Training 1. Registered nurses1Associate degree 2. Postsecondary teachers1Doctoral degree 3. Retail salespersons4Short-term on-the-job training 4. Customer service representatives3Moderate-term on-the-job training 5. Combined tool preparation and serving workers, including fast food 4Short-term on-the-job training 6. Cashiers, except gaming4Short-term on-the-job training 7. Janitors, and cleaners, except maids and housekeeping cleaners 4Short-term on-the-job training 8. General and operations managers1Bachelor’s or higher degree, plus work experience 9. Waiters and waitresses4Short-term on-the-job training 10. Nursing aids, orderlies, and attendants3Short-term on-the-job training Source: Hecker, 2004

Table 7. Occupations with Largest Job Growth, United States, (cont). Occupation Quartile Rank by 2002 Median Earnings Typical Source of Education Or Training 11. Truck drivers, heavy and tractor-trailer2Moderate-term on-the-job training 12. Receptionists and Information clerks3Short-term on-the-job training 13. Security Guards4Short-term on-the-job training 14. Office clerks, general3Short-term on-the-job training 15. Teacher assistants4Short-term on-the-job training 16.Sales representatives, wholesale and manufacturing, except technical and scientific products 1Moderate-term on-the-job training 17. Home health aides4Short-term on-the-job training 18. Personal and home care aides4Short-term on-the-job training 19. Truck drivers, light or delivery services3Short-term on-the-job training 20.Landscaping and groundskeeping workers 3Short-term on-the-job training Source: Hecker, 2004

Table 8. Fastest Growing Occupations, United States, Source: Hecker, 2004 Occupation Quartile Rank by 2002 Median Income Typical Source of Education or Training 1. Medical assistants3Moderate-term on-the-job training 2. Network systems and data communications analysts 1Bachelor’s degree 3. Physician assistants1Bachelor’s degree 4. Social and human service assistants3Moderate-term on-the-job training 5. Home health aides4Short-term on-the-job training 6. Medical records and health information technicians 7. Physical therapist aides 8. Computer software engineers, applications 9. Computer software engineers, systems software Associate degree Short-term on-the-job training Bachelor’s degree 10. Physical therapist assistants2Associate degree

Table 8. Fastest Growing Occupations, United States, (cont.) Source: Hecker, 2004 Occupation Quartile Rank by 2002 Median Income Typical Source of Education or Training 11. Fitness trainers and aerobics instructors3Postsecondary vocational award 12. Database administrators 1Bachelor’s degree 13. Veterinary technologists and technicians3Associate degree 14. Hazardous materials removal workers2Moderate-term on-the-job training 15. Dental hygienists1Associate degree 16. Occupational therapist aides 17. Dental assistants 18. Personal and home care aides 19. Self-enrichment education teachers Short-term on-the-job training Moderate-term on-the-job training Short-term on-the-job training Work experience in a related occupation 20. Computer systems analysts1Bachelor’s degree

Table 9. Elements of Regional Systems of Innovation (Acs, 2002). A. Inter-firm relationships1.Network economies 2.Clusters 3.Supplier chains as source of innovation 4.Cooperation and trust B. The knowledge infrastructure1.University research 2.Focus new product R&D 3.External sources of knowledge 4.Local R&D spillovers C. Community and the public 1.Emphasis on regional level sector2.Public-private partnerships 3.Community, cooperation and trust

D. Internal organization of the firm 1.Organic organization 2.Continuous innovation 3.Matrix organizations E. Institutions of the financial sector 1.Venture capital 2.Informal financial sector F. Physical and communication 1.Global orientation infrastructure 2.Electronic data exchange G. Firm strategy, structure and rivalry 1.Easy to start new firms 2.Inexpensive access to knowledge 3.Entrepreneurship is crucial Table 9. Elements of Regional Systems of Innovation (Acs, 2002). (cont.)

Table 10. Examples of Innovation Measures Used in Previous Research on Innovative Activity or Capacity A. Innovative Activity or Capacity  Patents  Academic R & D Expenditures  Industrial R & D Expenditures  Federal R & D Expenditures  Innovation Counts  Small Business Innovation Research (SBIR) Grants  Undergraduate/Graduate Degrees in Science and Engineering  Professional Employment in High Tech Industries

Table 10. Examples of Innovation Measures Used in Previous Research on Innovative Activity or Capacity (Cont.) B. Human Capital or Labor Quality  High School Graduates as % of Population  College Graduates as % of Population  Technical School Graduates as % of Population  Working Age Population  Managerial, Professional, and Technical Employment  Online Population  Computer Availability and Use in Schools

Table 10. Examples of Innovation Measures Used in Previous Research on Innovative Activity or Capacity (Cont.) C. Entrepreneurial Environment  Venture Capital Investments  Initial Public Offerings  New Publicly Traded Companies  Employment in “Gazelle” Firms  New Business Start-Ups  Job Churning (product of business start-ups and business failures)  Small Business Employment  Employment/Establishments in Business Services  Diversity of Population

Table 10. Continued D. Agglomeration Economies  Employment/Establishments in High Technology Industries  Inc. 500 Companies  Population Density  Density of Establishments  Export Activity  Manufacturing Employment Growth Rate  Importance of Regional Economy to U.S. Economy E. Competitiveness of Local Economy Sources: Huovari (2001), Hill (1998), Catalytix (2003), Porter (2001), SGBP (2001, 2002), Atkinson and Gottlieb (2001), Gardiner (2003), Markusen (2001), Acs (2002), Florida (2002).

National State Technology & Science Index Overall Index, 2004 Rank Rank State (2004) State (2004) Massachusetts 1 New Mexico14 California 2 New York15 Colorado 3 Pennsylvania16 Maryland 4 Arizona17 Virginia 5 Georgia 18 Washington 6 Oregon19 New Jersey 7 North Carolina20 Minnesota 8 Illinois21 Utah 9 Vermont22 Connecticut10 Texas23 Rhode Island11 Ohio24 New Hampshire12 Michigan25 Delaware13

National State Technology & Science Index Overall Index, 2004 (cont.) Rank Rank State (2004) State (2004) Kansas 26 Hawaii39 Wisconsin27 Alaska40 Nebraska28 Wyoming41 Indiana29 Louisiana42 Idaho30 Nevada43 Missouri31 South Carolina44 Florida32 North Dakota45 Maine33 West Virginia46 Tennessee34 South Dakota47 Oklahoma35 Kentucky48 Alabama36 Arkansas49 Iowa37 Mississippi50 Montana 38 Source: DeVol and Kuepp (2004).

Table 11. Selected Measures of Metropolitan Innovative Environment A. Innovative Activity PATENT:Number of patents issued per 1000 population (USPTO, ) ARD:Academic R&D expenditures per 1000 population (NSF, ) SED:Doctorates awarded in science and engineering per 1000 population (NSF, ) GSSGraduate science and engineering students per 1000 population (NS, ) ETEC:Percentage of employment in technical professions – computer science; engineering except civil; natural, physical, and social science (BLS, 2000)

Table 11. Selected Measures of Metropolitan Innovative Environment (cont.) B. Labor Force Quality PHSG:Percentage of adult population (25+) that are high school graduates (CBP, 2000) PCG:Percentage of adult population (25+) that are college graduates (CBP, 2000) PWP:Percentage of population (age 16-64) that are employed (Census, 2000)

Table 11. Selected Measures of Metropolitan Innovative Environment (cont.) C. Entrepreneurial Environment PCEST: Percentage change in number of establishments (CBP, ) PEL2O: Percentage of establishments with fewer than 20 employees (BLS, 2000) INC500: Number of Inc 500 companies per 100,000 population ( 2000) VCAP:Venture capital investments ($) per capita (Price Waterhouse Coopers, 2000) EMB:Percentage of employment in managerial and business professions (BLS, 2000)

Table 11. Selected Measures of Metropolitan Innovative Environment (cont.) D. Agglomeration Economics HTEMP: Percentage of employment in high-technology industries (CBP, 2000) HTEST: Percentage of establishments in high technology industries (CBP, 2000) ITEMP: Percentage of employment in information technology industries (CBP, 2000) ITEST: Percentage of establishments in information technology industries (CBP, 2000) E. Competitiveness in Global Economy EXPORTS: Exports as a percent of gross metropolitan product, metro areas ranked in quantiles (DOC, 1999)

Table 12. Metropolitan Areas in Regional Innovation Systems Cluster Groupings 1.Outliers (4) Atlanta, GA CMSA Austin, TX MSA Raleigh, Durham, Chapel Hill, NC CMSA Baton Rouge, LA MSA 2.High (12) Dallas-Fort Worth-Arlington, TX CMSA Houston-Galveston-Brazoria, TX CMSA Huntsville, AL MSA Melbourne-Titusville-Palm Bay, FL MSA Orlando, FL MSA Pensacola, FL MSA Richmond-Petersburg, VA MSA San Antonio, TX MSA Sarasota-Bradenton, FL MSA Tampa-St. Petersbusrg-Clearwater, FL MSA Tulsa, OK MSA West Palm Beach-Boca Raton, FL MSA

Table 12. Metropolitan Areas in Regional Innovation Systems Cluster Groupings (cont.) 3.College Towns (5) Athens, GA MSA Bryan-College Station, TX MSA Charlottesville, VA MSA Gainesville, FL MSA Tallahassee, FL MSA 4.Medium (20) Augusta-Aiken, GA-SC MSA Birmingham, AL MSA Charleston-North Charleston, SC MSA Charlotte-Gastonia-Rock Hill, NC-SC MSA Cincinnati-Hamilton, OH-KY-IN MSA Columbia, SC MSA Greensboro--Winston-Salem–High Point, NC MSA Greenville-Spartanburg-Anderson, SC MSA Jackson, MS MSA Jacksonville, FL MSA Knoxville, TN MSA Lexington, KY-IN MSA Memphis, TN-AR-MS MSA Nashville, TN MSA New Orleans, LA MSA Norfolk-Virginia Beach-Newport News, VA-NC MSA Oklahoma City, OK MSA Roanoke, VA MSA Wilmington, NC MSA

Table 12. Metropolitan Areas in Regional Innovation Systems Cluster Groupings (cont.) 5.Below Average (47) Abilene, TX MSA Albany, GA MSA Alexandria, LA MSA Amarillo, TX MSA Ashville, NC MSA Auburn-Opelika, AL MSA Beaumont-Port Arthur, TX MSA Biloxi-Gulfport-Pascagoula, MS MSA Chattanooga, TN-GA MSA Clarksville-Hopkinsville, TN-KY MSA Columbus, GA MSA Corpus Christi, TX MSA Decatur, AL MSA Dothan, AL MSA Enid, OK MSA Evansville-Henderson, IN-KY MSA Fayetteville, NC MSA Fayetteville-Springdale-Rogers, AR MSA Florence, SC MSA Fort Smith, AR-OK MSA Fort Walton Beach, FL MSA Goldsboro, NC MSA Greenville, NC MSA Hattiesburg, MS MSA Hickory-Morganton-Lenoir, NC MSA Jackson, TN MSA Jacksonville, NC MSA Jonesboro, AR MSA Killeen-Temple, TX MSA Lafayette, LA MSA Lake Charles, LA MSA Lakeland-Winter Haven, FL MSA Lawton, OK MSA Little Rock-North Little Rock, AR MSA Long View-Marshall, TX MSA Lubbock, TX MSA Lynchburg, VA MSA

Table 12. Metropolitan Areas in Regional Innovation Systems Cluster Groupings (cont.) 5.Below Average (47) (cont.) Macon, GA MSA Mobile, AL MSA Monroe, LA MSA Montgomery, AL MSA Myrtle Beach, SC MSA Odessa-Midland, TX MSA Owensboro, KY MSA Panama City, FL MSA Pine Bluff, AR MSA Rocky Mount, NC MSA San Angelo, TX MSA Savannah, GA MSA Sherman-Denison, TX MSA Shreveport-Bossier City, LA MSA Sumter, SC MSA Tuscaloosa, AL MSA Tyler, TX MSA Victoria, TX MSA Waco, TX MSA Wichita Falls, TX MSA 6. Low (18) Anniston, AL MSA Brownsville-Harlingen-San Benito, TX MSA Danville, VA MSA Daytona Beach, FL MSA El Paso, TX MSA Florence, AL MSA Fort Myers-Cape Coral, FL MSA Fort Pierce-Port St. Lucie, FL MSA Gadsden, AL MSA Houma, LA MSA Huntington-Ashland, WY-KY-OH MSA Johnson City-Kingsport-Bristol, TN-VA MSA Laredo, TX MSA McAllen-Edinburg-Mission, TX MSA Naples, FL MSA Ocala, FL MSA Punta Gorda, FL MSA Texarkana, TX-Texarkana, AR MSA

Map 1: Persistent Poverty and RIS Counties, Southeastern United States, 2000

Map 2: Persistent Poverty and RIS (Including Medium) Counties, Southeastern United States, 2000

Table 13. Mean Values for Indicators of Innovation by Cluster Grouping Indicators Outliers High College Towns Medium Average Low 1. Innovative Activity PATENT: Patents issued ARD: Academic R&D ETEC: Employment in Tech. Prof Labor Force Quality PHSG: High School Graduates PCG: College Graduates PWP: Working Population Entrepreneurial Environment PCEST: Change in Establishments PEL20: Establishments < 20 emp. (%) INC500: Inc. 500 Companies (%) VCAP: Venture Capital ($) EMP: Business Services Emp. (%) EST: Business Services Estab. (%) EMB: Emp. In Mng. And Bus. Prof. (%) Agglomeration Economics HTEMP: High Tech Employment HTEST: High Tech Establishments Competitiveness EXPORT: Export Rank (1-4)

Table 14. Changes in Aggregate Economic Activity by Cluster Groupings, Change in Change in Change in Personal Earnings by Earnings by Cluster Grouping Income Place of Work Place of Residence (%) (%) (%) A. Metro Counties Outliers (32) a High (58) College Towns (13) Medium (113) Below Average (106) Low (33) a Number of metro or nonmetro counties in the cluster grouping.

Table 14. Changes in Aggregate Economic Activity by Cluster Groupings, (cont.) Change in Change in Cluster Grouping Employment Population (%) (%) A. Metro Counties Outliers (32) a High (58) College Towns (13) Medium (113) Below Average (106) Low (33) a Number of metro or nonmetro counties in the cluster grouping.

Table 14. Changes in Aggregate Economic Activity by Cluster Groupings, (cont.) Change in Change in Change in Personal Earnings by Earnings by Cluster Grouping Income Place of Work Place of Residence (%) (%) (%) B. Monmetro Counties Outliers (31) High (40) College Towns (24) Medium (136) Below Average (315) Low (42) Rural LMAs (349)

Table 14. Changes in Aggregate Economic Activity by Cluster Groupings, (cont.) Change in Change in Cluster Grouping Employment Population (%) (%) B. Monmetro Counties Outliers (31) High (40) College Towns (24) Medium (136) Below Average (315) Low (42) Rural LMAs (349)

Table 15. Changes in Per Capita Economic Activity by Cluster Groupings, Change in Earnings Change in Earnings Per Worker by Per Employed Resident Cluster Grouping Place of Work by Place of Residence (%) (%) A. Metro Counties Outliers (32) a High (58) College Towns (13) Medium (113) Below Average (106) Low (33) a Number of metro or nonmetro counties in the cluster grouping

Table 15. Changes in Per Capita Economic Activity by Cluster Groupings, (cont.) Change in Change in Per Capita Share of Population Cluster Grouping Personal Income in Poverty (%) (%) A. Metro Counties Outliers (32) a High (58) College Towns (13) Medium (113) Below Average (106) Low (33) a Number of metro or nonmetro counties in the cluster grouping.

B. Monmetro Counties Outliers (31) High (40) College Towns (24) Medium (136) Below Average (315) Low (42) Rural LMAs (349) Table 15. Changes in Per Capita Economic Activity by Cluster Groupings, (cont.) Change in Earnings Change in Earnings Per Worker by Per Employed Resident Cluster Grouping Place of Work by Place of Residence (%) (%)

B. Monmetro Counties Outliers (31) High (40) College Towns (24) Medium (136) Below Average (315) Low (42) Rural LMAs (349) Table 15. Changes in Per Capita Economic Activity by Cluster Groupings, (cont.) Change in Change in Per Capita Share of Population Cluster Grouping Personal Income in Poverty (%) (%)

Table 16. Regression Results for Change in Nonmetro County Population and Employment, Intercept College Grad Pupil/Teacher Rec. Infrastructure Amenity Rank (1-7) Govt. Expenditure High-Tech Emp Tech. Occupation Manufacturing. Emp.-.06E POP 1990 (000,000) Emp 1990 (000, 000) MSA Pop Change MSA Emp Change MSA Pop Density Outlier High College Town Low Very Low R2R F State Fixed EffectsYes N584 Variable Coefficient t-value Coefficient t-value Population Equation Employment Equation

Table 17. Regression Results for Change in Nonmetro County Earnings, Intercept College Grad Pupil/Teacher Rec. Infrastructure Amenity Rank (1-7) Govt. Expenditure High-Tech Emp Tech. Occupation Manufacturing. Emp-.24E E Earnings, E E MSA Earnings Change MSA Pop Density Outlier High College Town Low Very Low R2R F State Fixed EffectsYes N584 Variable Coefficient t-value Coefficient t-value Earnings by Place of Work Earnings by Place of Residence

Table 18. Regression Results for Changes in Nonmetro County Earnings Per Worker, Intercept College Grad Pupil/Teacher Rec. Infrastructure Amenity Rank (1-7) Govt. Expenditure High-Tech Emp Tech. Occupation Manufacturing. Emp-.21E E Earnings, MSA Earnings Change MSA Pop Density Outlier High College Town Low Very Low R2R F State Fixed EffectsYes N584 Variable Coefficient t-value Coefficient t-value Earnings by Place of Work Earnings by Place of Residence

Innovation Policies for Non-RIS Regions (Rosenfeld, 2002 and Tödtling, 2004) Industry Clusters Support clusters in new industries related to existing industrial base Strengthen emerging/potential clusters in the region

Innovation Policies for Non-RIS Regions (Rosenfeld, 2002 and Tödtling, 2004) (Continued) New Firms P romote entrepreneurship and new firm development Attract cluster-related firms

Innovation Policies for Non-RIS Regions (Rosenfeld, 2002 and Tödtling, 2004) (Continued) Knowledge and Innovation Develop cluster-specific technology centers Attract branches of national research organizations Build up and attract new labor skills

Innovation Policies for Non-RIS Regions (Rosenfeld, 2002 and Tödtling, 2004) (Continued) Networks Link firms to local and external knowledge providers Technology transfer programs