While rural entrepreneurship declines, rural businesses nearly match urban peers’ innovativeness

Two recent reports provide good news and bad news regarding innovation in America’s rural areas. Only one in six individuals living in rural areas was self-employed in 2016 — down from one in four in 1988, according to a new issue brief from the Small Business Administration (SBA). This represents a decline of nearly 20 percent over that span of time. Meanwhile, a recent report from the Department of Agriculture’s Economic Research Service (USDA ERS) found that between 2010 and 2014 rural businesses in some nonfarm tradable industries are as likely to be substantive innovators as their urban peers. This is especially true across manufacturing industries with nearly identical rates of substantive innovation between both rural and urban companies.

Driven in part by a decline in rural population due to migration, the authors claim that the decline in self-employment in rural areas may be the root cause of several large scale issues, especially when compared to their urban peers. These include lower earnings, higher poverty, lower educational achievement, lower mortality, and lower life expectancy driven by increased suicide rates and drug overdoses. To help reduce migration, the author proposes policies that increase the attractiveness of careers in rural areas, improved telecommunications, and transportation infrastructure. To help potential rural entrepreneurs, the author also proposes entrepreneurial support programs that provide guidance, increase availability of financing, and mitigate the burdens imposed by taxes and regulations.

The new research from USDA challenges the assertion that innovation is overwhelmingly an urban phenomenon, as per capita patent rates are six times higher than those in rural areas. Based upon the 2014 Rural Establishment Innovation Survey (REIS) – a nationally representative business survey of self-reported innovation – the researchers found 23 percent of rural establishments and 31 percent of urban establishments to be substantive innovators, which is defined as the pursuit of incremental and more far-ranging innovation likely to add value or increase market share.

The report also highlights the importance of innovation in manufacturing with both rural and urban manufacturers being among the most innovative companies. The high rate of innovation in manufacturing is clustered around manufacturing activities in several industry clusters including pharmaceuticals, chemicals, computers, plastics, and textiles. These findings seem to indicate that regardless of the presumed advantages for urban manufacturers (e.g., deeper supplier, customer, and information networks) that it is vital for manufacturers is driven by their willingness to engage in innovation.