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The Relationship Between High-Quality Startups and Geography

We know that startups are highly concentrated in certain places in the U.S. But a new report finds that high-quality startups are even more so.

Although the Silicon Valley remains the epicenter of global innovation and entrepreneurship, there’s no shortage of concerned voices arguing that America’s innovative engine has run out of steam. In his new book The Rise and Fall of American Growth, the economist Robert J. Gordon argues that America’s great glory days of innovation are behind it. Others such as former Treasury Secretary Larry Summers agree that the U.S. has entered a prolonged phase of low innovation, low productivity, low growth, and “secular stagnation.”

new report by MIT economists Jorge Guzman and Scott Stern generates relevant and important data on the increasingly concentrated geography of American innovation and entrepreneurship. The report develops several key measures of quality and quantity of entrepreneurship in the U.S., covering the period from 1988-2014.

Ebbs and flows of startup activity

First and foremost, the report finds that, while America’s entrepreneurial potential is rebounding, it is not reaching its full potential. The chart below, from the report, graphs the entrepreneurial potential of startups (based on the Regional Entrepreneurship Cohort Potential Index, which measures both the quality of entrepreneurship and the number of firms in a region) in 15 U.S. states from 1988-2014. By examining the characteristics of startups near the time they were founded, the study is able to identify not just the number, but the quality of entrepreneurial startup companies in key entrepreneurial regions of the U.S.

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