A research partnership within the SBA is casting new light on the critical role a strategic approach to innovation and entrepreneurship plays in strengthening a region’s economic health.
After several years and projects studying this dynamic, Professor of Economics Jonathan Silberman and Associate Professor of Economics Nivedita Mukherji are sharing their findings and recommendations to help jump start Michigan's struggling economy.
New ideas in the business world are important, the professors say, but the regions that guide the innovations in the right direction will reap the greatest benefits. Regional economic prosperity increasingly depends on a region’s capacity to command the production of ideas, and to create new products and services.
The link between innovation and economic health is a strong one. In fact, the federal government recently created the National Advisory Council on Innovation and Entrepreneurship to foster entrepreneurship and identify new ways to take ideas from the lab to the marketplace in order to drive economic growth.
“America's innovation engine is not as efficient or as effective as it needs to be, and we are not creating as many jobs as we should,” U.S. Commerce Secretary Gary Locke has stated. “We must get better at connecting the great ideas to the great company builders.”
This is especially relevant for Michigan, as much of the technology derived from the automobile industry has not yet resulted in an entrepreneurial culture that converts new knowledge to economic growth.
That's what Silberman and Mukherji hope to change for Michigan.
The Michigan paradox
Silberman and Mukherji have been exploring why Michigan's economy has been less than healthy despite Michigan’s significant investments in research and development and the high number of patents granted.
Describing what they call the "Michigan paradox," Mukherji says, "Michigan is second only to California in research and development, and ranks first if you account for the size difference in the economies of Michigan and California. If innovation is important to economic growth, and Michigan ranks high in innovation, why does it experience low economic growth?”
As they’ve researched this paradox, the pair has published its findings in research journals. They’ve presented their work at conferences and meetings focused on innovation and technology, including the prestigious Babson Entrepreneurial Research Conference in Switzerland in June 2010 and the Technology Transfer Society Annual Meeting in November 2010.
Not only are Silberman and Mukherji working to better understand the role of innovation in economic growth, they're focused on prescribing solutions for renewed economic health.
Diagnosing the symptoms
The duo now maintains that Michigan is experiencing a sluggish economy because it limits itself to technology in slow-growing fields; it has low absorptive capacity and doesn't demonstrate an ability to use external knowledge.
“We find that a state’s ability to specialize in technologies that are expanding faster than the national average increases economic performance,” Silberman says. These technologies include communications equipment, computer hardware and software, computer peripherals, information storage and semiconductor devices.
States that focus on fast-growing technologies are concentrated mostly along the West Coast, with California driving much of the action. Michigan, on the other hand, ranked 48 in the U.S. on rapidly growing technologies. It is directing most of its resources toward low growth sectors, and it is sluggish progressing toward new, promising technologies.
“States that are unable to innovate in new technologies will lose ground to others, resulting in low economic growth,” Silberman says.
The pair says another key factor influencing innovation productivity lies in examining how a metropolitan area leverages external knowledge -- knowledge developed outside a region.
Their results suggest that external knowledge exerts a strong impact on the innovative quantity and quality of a region.
“But it is not sufficient to be merely exposed to outside knowledge – a region must have the ability to recognize, assimilate and commercialize such knowledge,” Mukherji says.
When this process takes place, the professors’ research shows, regions become more innovative. In their study, the professors found a high absorptive capacity can increase innovative productivity by up to 24 percent.
Currently, of the five Michigan metropolitan areas included in the study, only Grand Rapids shows a positive absorption impact.
Prescribing solutions
The study also factored in local economic conditions, which carry important policy implications that can support a region's innovation and overall economic success.
“Regions with a strong and vibrant entrepreneurial environment with high rates of business births and deaths are more absorptive. So are regions with a diverse economic environment," Silberman says.
The professors have used the insights they’ve gained to develop practical advice for regions hoping to bolster their economies.
Based on their findings, the professors are confident these approaches will help regions – like those in Michigan – begin to thrive in today's knowledge-based economy.
By Flori Meeks
A research partnership within the SBA is casting new light on the critical role a strategic approach to innovation and entrepreneurship plays in strengthening a region’s economic health.
After several years and projects studying this dynamic, Professor of Economics Jonathan Silberman and Associate Professor of Economics Nivedita Mukherji are sharing their findings and recommendations to help jump start Michigan's struggling economy.