Assessing regional entrepreneurial readiness.

Author:Zheng, Ping

Each of the past two industrial revolutions, accompanied by unprecedented technological advance, brought radical change to mankind's working style and significantly improved mankind's living. Some say we are marching through a third industrial revolution--the Digital Revolution, brought about by digital computing and communication technology that have made things "easier" for us. Nowadays, mechanical arms and robots have "freed" men from standing in front of assembly lines and working in some hazardous environments. Information and knowledge have never before been so freely and quickly exchanged. With just a few clicks on your phone, your food or groceries can be delivered to your door. You don't have to go to your doctor's office to get a checkup. And believe it or not, soon you may have an autopilot for your chauffeur...

Our world is changing. Changes bring together innovation and new opportunities. The old American dream "that you go to college, get a degree, go directly into a well-paying job in your field, work there for 30 years, then get a pension plan and a Rolex when you retire" has faded. The new American dream is "an entrepreneurial journey that is unlike anything that has ever existed before. The barrier to entry to becoming an entrepreneur is literally the lowest it's ever been." (1)

Recognizing that entrepreneurship is an important engine of growth in the economy, economic development practitioners (EDPs) should not rely solely on employment and wage figures to assess their region's economic well-being, but should focus on promoting a nurturing environment--both physical and cultural--for business growth. Having this in mind, the Indiana Business Research Center (IBRC) developed a timely and comprehensive assessment scheme in the form of the E-primed Entrepreneurship Readiness Index, or simply the E-primed Index. This is just one part of the Regional Economic Development (RED) project funded by the U.S. Economic Development Administration.

What is the E-primed Index?

The E-primed Index leverages and distills a large portion of the RED research and analysis utilizing both conventional and unconventional data. The composite index consists of seven components, each one directly related to economic development and a region's ability to foster business startups and growth:

  1. Innovation capacity as the entrepreneurship (E-ship) ecosystem support

  2. Social capital as the E-ship enhancer

  3. Inter-industrial linkages as the E-ship propellant

  4. Regional economic cohesiveness as an E-ship attracter

  5. Regional personality and cultural characteristics also as an E-ship attracter

  6. Arts and design and E-ship web resource utilization as signals for startups and business formation

  7. Social media sentiment as signals for E-ship activities and economic growth

    The E-ship ecosystem support (component 1) is a repackaging of elements in Innovation Index 2.0--an IBRC legacy product used to assess regional innovative capacity, a key facilitator for growth opportunities. It combines both input measures (such as human capital, high-tech industries and occupations, venture capital, and community banking), as well as output benchmarks (such as gross domestic product per capita, unemployment and poverty rates).

    Social capital (component 2) goes beyond the conventional interpretation of social capital as the propensity of residents to participate in community and organizational activities and reaches out for much broader social contents. Its thematic elements include crime; religion, culture and civic behavior; organizations, local institutions and participation; and demographic diversity and fractionalization. Social capital is considered a hidden force that enhances E-ship through reoccurring social interaction in a society.

    Industry clusters provide an important regional economic environment that fosters the growth of E-ship. New firms are easier to start with the support of well-organized supply-demand chains in a cluster. Incumbent firms benefit from sharing labor pools and knowledge spreading within a cluster, maintaining their competitiveness and innovation momentum. The inter industry linkages measure (component 3) looks at two venues of cluster growth: industrial concentration (or strength) and adaptability.

    Cluster concentration emphasizes the geographic concentration of interdependent industries, connected with input-output linkages, taking advantage of input sharing, knowledge spillovers and labor market pooling. In this category, we constructed the well-known Herfindahl Index and National Average Index--the former measuring the absolute concentration of a cluster and the latter measuring the relative concentration in comparison to the national benchmark. We also included, by the effort of our Pennsylvania State University (PSU) partners, the proximity-adjusted...

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