Driving Regional Innovation The Innovation Index 2.0 August 2016 This project is funded in part by the U.S. Commerce Department’s Economic Development Administration. Driving Regional Innovation The Innovation Index 2.0 August 2016 Prepared for U.S. Economic Development Administration By Indiana Business Research Center, Kelley School of Business, Indiana University Timothy Slaper, Ph.D., Director of Economic Analysis Tamara van der Does, Economic Research Associate Portia Egan, Economic Research Associate Grace Ortuzar, Economic Research Associate Rachel Strange, Managing Editor Table of Contents INTRODUCTION ................................................................................................................... 4 Background ................................................................................................................................................ 4 Version 2.0 ................................................................................................................................................... 5 Organization of the Report ...................................................................................................................... 6 CALCULATING THE INNOVATION INDEX ................................................................................... 7 Index Composition .................................................................................................................................... 7 Inputs ................................................................................................................................................................................................ 8 Outputs ........................................................................................................................................................................................... 10 Social Capital ................................................................................................................................................................................ 11 State Context ................................................................................................................................................................................ 13 Index Calculation .................................................................................................................................... 13 Understanding the Index ........................................................................................................................ 15 IN-DEPTH EXPLORATION OF THE INNOVATION INDEX COMPONENTS .......................................... 17 Human Capital and Knowledge Creation Index ............................................................................... 17 “Salad Days” Population Annual Average Growth Rate ...................................................................................................... 17 Educational Attainment .............................................................................................................................................................. 18 Knowledge Creation and Technology Diffusion ..................................................................................................................... 20 STEM Education and Occupations ............................................................................................................................................ 23 Business Dynamics Index ........................................................................................................................ 25 Establishment Formation and Dynamics................................................................................................................................... 26 Venture Capital ............................................................................................................................................................................ 28 Business Profile Index ............................................................................................................................... 30 Foreign Direct Investment Attractiveness ................................................................................................................................. 30 Connectivity .................................................................................................................................................................................. 32 Dynamic Industry Profile .............................................................................................................................................................. 34 Proprietorship ................................................................................................................................................................................. 36 Employment and Productivity Index .................................................................................................... 40 Job Growth to Population Growth Ratio .................................................................................................................................. 40 Change in Share of High-Tech Industry Employment ............................................................................................................. 41 Industry Performance ................................................................................................................................................................... 42 Gross Domestic Product (GDP) .................................................................................................................................................. 44 Patents............................................................................................................................................................................................ 44 Economic Well-Being Index ................................................................................................................... 45 Per Capita Personal Income Growth ........................................................................................................................................ 46 Compensation .............................................................................................................................................................................. 46 Income Inequality–Mean to Median Ratio .............................................................................................................................. 47 Average Poverty Rate ................................................................................................................................................................. 47 Average Unemployment Rate ................................................................................................................................................... 48 Dependency Ratio–Measured by Income Sources ............................................................................................................... 48 Average Net Migration ................................................................................................................................................................ 49 State Context ........................................................................................................................................... 49 Per Pupil Education Spending in K-12 ........................................................................................................................................ 50 Science and Engineering Graduates from State Institutions ................................................................................................. 51 STEM Talent Flow ........................................................................................................................................................................... 51 Research and Development ...................................................................................................................................................... 52 ii Institutionally-Based Startups ....................................................................................................................................................... 53 Small Business Innovation Research and Technology Transfer Awards ............................................................................... 54 Kauffman Entrepreneurship Index ............................................................................................................................................. 55 Business Formation and Survival ................................................................................................................................................. 56 Volunteer Rate .............................................................................................................................................................................. 57 INTERPRETING THE INDEX ..................................................................................................... 59 REGIONAL PERFORMANCE GOALS: GAUGING INNOVATION OVER TIME .................................... 62 CONCLUSION ................................................................................................................... 63 REFERENCES ..................................................................................................................... 65 Human Capital and Knowledge Creation Index