Exploring innovation creation across rural and urban firms. Analysis of the National Survey of Business Competitiveness
| Pages | 357-376 |
| DOI | https://doi.org/10.1108/JEPP-D-18-00026 |
| Published date | 04 December 2018 |
| Date | 04 December 2018 |
| Author | Giri Aryal,John Mann,Scott Loveridge,Satish Joshi |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Exploring innovation creation
across rural and urban firms
Analysis of the National Survey of
Business Competitiveness
Giri Aryal, John Mann, Scott Loveridge and Satish Joshi
Michigan State University, East Lansing, Michigan, USA
Abstract
Purpose –The innovation creation literature primarily focuses on urban firms/regions or relies heavily on
these data; less studied are rural firms and areas in this regard. The purpose of this paper is to employ a new
firm-level data set, national in scale, and analyze characteristics that potentially influence innovation creation
across rural and urban firms.
Design/methodology/approach –The authors use the 2014 National Survey of Business Competitiveness
(NSBC) covering multiple firm-level variables related to innovation creation combined with secondary data
reflecting the regional business and innovative environments where these firms operate. The number of
patent applications filed by these firms measures their innovation creation, and the paper employs a negative
binomial regression estimation for analysis.
Findings –After controlling for industry, county and state factors, rural and urban firms differ in their
innovation creation characteristics and behaviors, suggesting that urban firms capitalize on their resources
better than rural firms. Other major findings of the paper provide evidence that: first, for rural firms, the
influence of university R&D is relevant to innovation creation, but their perception of university-provided
information is not significant; and second, rural firms that are willing to try, but fail, in terms of innovation
creation have a slight advantage over other rural firms less willing to take on the risk.
Originality/value –This paper is one of the first to analyze the 2014 NSBC, a firm-level national survey
covering a wide range of innovation-related variables. The authors combine it with other regional secondary
data, and use appropriate analytical modeling to provide empirical evidence of influencing factors on
innovation creation across rural and urban firms.
Keywords Innovation, National Survey of Business Competitiveness, Negative binomial, Patent counts,
Rural enterprise innovation survey, Rural firms, Rural-urban innovation gap
Paper type Research paper
1. Introduction
Innovative firms are essential to sustain economic growth. Established firms must
continuously innovate to survive the forces of creative destruction in the face of new and
disruptive technologies. Innovation also serves as a mechanism for new firm entry into
emerging markets and enables these new entrants to compete with existing firms as well as
other new entrants (Christensen, 2013; Schumpeter, 1942). The literature on regional
innovation is primarily focused on urban innovation and based on firm data from urban
areas that foster innovation creation and adoption; less studied is rural innovation and
potential differences in innovation drivers between rural and urban areas (Dabson, 2011).
Of the studies comparing rural and urban innovation, many conclude that rural America
Journal of Entrepreneurship and
Public Policy
Vol. 7 No. 4, 2018
pp. 357-376
Emerald Publishing Limited
2045-2101
DOI 10.1108/JEPP-D-18-00026
Received 2 July 2018
Revised 12 July 2018
Accepted 12 July 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
© Giri Aryal, John Mann, Scott Loveridge and Satish Joshi. Published by Emerald Publishing Limited.
This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may
reproduce, distribute, translate and create derivative works of this article ( for both commercial and
non-commercial purposes), subject to full attribution to the original publication and authors. The full
terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
The authors would like to acknowledge the partial support for this work from USDA National
Institute of Food and Agriculture Grant No. 2016-68006-24852.
357
Innovation
creation across
rural and
urban firms
lags in its innovation performance (Orlando and Verba, 2005; Porter et al., 2004;
Wojan et al., 2015).
Economies need innovation-based entrepreneurship to achieve and sustain growth
(Mann and Shideler, 2015), and competitiveness of the overall US economy builds on the
rural–urban interdependency (Dabson, 2007, 2011). The rural–urban innovation gap has
long-term consequences. For example, lower education rates and fewer economic
opportunities for youth lead to sluggish wealth creation which, in turn, contributes to the
persistence of rural poverty (Lyons et al., 2018; Orlando and Verba, 2005; Porter et al., 2004;
Ratner and Markley, 2014).
Innovation in urban areas is generally explained in terms of the agglomeration effect
supported by the higher population density as well as higher concentrations and diversity
of firms and industries in these areas (Carlino et al., 2001; Glaeser et al., 1992; Orlando and
Verba, 2005). Urban agglomeration facilitates the urban firms’opportunities to capitalize on
their scale economies through enhanced communication and knowledge spillovers among
innovative firms and industries, better supply of critical innovation resources such as
human capital, extended buyer and supplier networks, and financial and professional
support services (Aryal et al., 2018; Orlando and Verba, 2005). On the other hand, scattered
populations and less developed markets in rural areas restrict the opportunities for
innovation by rural firms.
Related to the locational obstacles to innovation, rural firms have lower levels of skilled
managers, professionals, and technicians and rural entrepreneurs are more likely to start
new businesses based on necessity rather than opportunity, which frequently leads to a
non-innovative enterprise that may be abandoned when better paying jobs arise (Acs, 2006;
Henderson, 2002). Rural firms are also less likely to be growth-oriented, which may be
attributed to owner characteristics such as embracing multi-generational business
ownership models or the tendency to avoid risk associated with adopting and/or creating
innovation (Knickel et al., 2009; Renski and Wallace, 2012). Such business models are less
likely to attract equity and venture capital due to reduced interest or flexibility in potential
exit strategies, a necessity for innovative startups (Markley, 2001).
In terms of policy obstacles, rural economies are often fr amed as primarily
agriculture-dependent, with substantial public resources focused on cost-saving
technologies for agriculture production (Mowery et al., 2010; Stauber, 2001). While these
kinds of innovations are important for the growth and development of the US agricultural
sector, dependence of rural economies on agriculture significantly declined after the
industrial revolution, and this gave rise to a new diversity of rural industries. Thus, when
policy makers overlook rural industrial diversity, this omission likely negatively impacts
non-agriculture related innovation in rural areas through missed opportunities for new
firms and reduced competition for existing firms (Stauber, 2001).
To provide guidance for policy makers that helps mitigate the negative effects of the
challenges highlighted above, it remains necessary to continue expanding our
understanding of the obstacles faced by rural firms in terms of innovation creation and
adoption (Chatterji et al., 2014; Fortunato, 2014). This is the underlying motivation for this
study. We develop our analytical models from firm-level data provided by the 2014 National
Survey of Business Competitiveness (NSBC). The NSBC data were made available by United
States Department of Agriculture (USDA) for confidential access. The NSBC is a unique
survey of the US firms, containing 257 variables from questions covering topics such as
Research and Development (R&D) activities, innovation outputs, failed innovations, patents,
other intellectual property protection, employee education levels, affiliated industry, location
factors including local amenities, market share, locati on-based barriers and local
government impact, among others. We combine selected innovation-related firm variables
from the NSBC data with county-level secondary data from the Bureau of Economic
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