Academic journal article Economic Review - Federal Reserve Bank of Kansas City

Can Rural America Support a Knowledge Economy?

Academic journal article Economic Review - Federal Reserve Bank of Kansas City

Can Rural America Support a Knowledge Economy?

Article excerpt

Knowledge has become the new premium fuel for economic growth in the 21st century. Knowledge fuels new ideas and innovations to boost productivity-and to create new products, new firms, new jobs, and new wealth. Some analysts estimate that knowledge-based activity accounts for half of the gross domestic product in Western industrialized countries. In the United States, knowledge-based industries paced gross domestic product (GDP) growth from 1991 to 2001, and their importance has accelerated since 1995.

In rural America, as elsewhere, a variety of factors make knowledge-based growth possible: high-skilled labor, colleges and universities, vibrant business networks, and infrastructure. Some rural communities are already leveraging these assets to transform their economy. Many other rural places, however, have yet to tap this rich economic potential.

This article analyzes the factors essential to rural knowledge-based activity in rural America. The first section defines knowledge-based economic activity, describes its growing importance in the U.S. economy, and identifies the regions of the country where it is concentrated. The second section uses empirical evidence to identify the factors that are essential to rural knowledge-based activity. The third section describes how some rural communities are leveraging these factors to build their own knowledge economy.

I. KNOWLEDGE: THE NEW ECONOMIC FUEL

Traditionally, economic growth was based on the physical resources and the products they produced. Today, knowledge powers the U.S. economy by generating new ideas and innovations that boost productivity and create new products.

What is knowledge-based economic activity?

Knowledge-based activities emerge from an intangible resource that enables workers to use existing facts and understandings to generate new ideas. These ideas produce innovations that lead to increased productivity, new products and services, and economic growth. In short, knowledge-based growth is derived from people's knowledge or ability to combine education, experience, and ingenuity to power growth.

Knowledge is often equated with information because both assets are intangible. Information, however, can be written down or outlined in a patent or process, making it easy to reproduce. Pieces of writing, artwork, music, movies, and datasets are information because they can be reproduced with the click of a button or the exchange of a CD. By contrast, the knowledge used to produce information is harder to codify or summarize on a piece of paper (Audretsch, Queau). Knowledge evolves and continuously combines varying pieces of information to meet changing needs.1 For example, the information architects create in the form of blueprints can be easily reproduced, but the knowledge used to create them is difficult to replicate as it is embedded in the education, experience, and ingenuity of the architect. In addition, it takes knowledge to alter or transform information-in this case, altering blueprints or turning them into buildings. As a result, knowledge is considerably less tangible than information.

Knowledge is also different from information and other resources because it produces spillovers. Spillovers are benefits to people beyond those who possess the knowledge. Like other resources, knowledge gives a direct boost to the economic growth of people, firms, and communities that have higher stocks of knowledge. But knowledge also provides indirect benefits by boosting the knowledge levels of other people, firms, and communities.2 Returning to our example, an architect can produce spillovers by interacting with other local architects and boosting their knowledge levels, such as through business mentoring.

Because of spillovers, the full potential of knowledge as the fuel for economic growth expands with the increasing interactions of people. Knowledge is enhanced through personal interactions, observation, action, and experience. …

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