WORKING PAPER

A systematic MIT approach for assessing ‘innovation-driven entrepreneurship’ in ecosystems (iEcosystems)

Prof. Fiona MurrayAssociate Dean for Innovation, MIT Sloan School of ManagementCo-Director, MIT Innovation Initiative

Dr. Phil BuddenSenior Lecturer, MIT Sloan School of Management

SEPTEMBER 2017

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A systematic MIT Approach for assessing 'innovation-driven entrepreneurship' in ecosystems

Dr.PhilBuddenMITSloanSchoolofManagement

Prof.FionaMurray

MITSloanSchoolofManagementMITInnovationInitiative

WorkingPaper

September2017

PublishedbyMIT’sLaboratoryforInnovationScience&Policy

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A systematic MIT approach for assessing 'innovation-driven-entrepreneurship' in ecosystems

‘Innovation’andentrepreneurshiparenowmuchsoughtafter,butnotalwayswell-defined,andevenlessoftenwellmeasured.ThisWorkingPaperdrawsuponourMITapproachtoinnovation,entrepreneurshipandthepowerfulcombinationof'innovation-drivenentrepreneurship'tosuggestamethodtocaptureasetofglobally-availablemetricstoassesstheseandtheecosystemsinwhichtheyflourish.OurMITapproachisguidedbyafewcriticalinsightsthatderivefromourresearch-informedframeworkandourexperienceofworkingwithalargenumberofdecision-makerswhoseekcomparablemetricsthatmakesenseandyetarenotoverlycomplex:

• Ourmetricsaredesignedtocapturebothinnovationandentrepreneurshipwhichweidentifyinsuccessfulecosystemsandhighlightthespecialblendof'innovation-drivenentrepreneurship';

• Insuchecosystems,therearefourkeyelementsinourframeworktomeasure:foundationalinstitutions,separateinnovationandentrepreneurshipcapacities,comparativeadvantage,andimpact;

• Startingwithfoundationalinstitutions,weseekglobally-availablemetricsthatallowformaximumcomparability,bothovertimeaswellasincomparisontootherecosystems,withthecaveatthatthesearetypicallyavailableonanationalnotasub-national'regional'level.

• Emphasizingmetricsforbothinnovationandentrepreneurshipcapacities,wethenfocusonthekeyinputsintothesetwodistinctivecapacities–measuredin5areas:humancapital,funding,infrastructure,demandandculture/incentives;

• Buildingontheinputsintoinnovationandentrepreneurshipcapacities,wethenincludemetricsthatcaptureintermediateoutputs(thatinturncanleadtolongertermregional'comparativeadvantage'andultimately'impact');

OurWorkingPaperisinformedbyourworkwithmanycolleaguesbutmostespeciallywithourfellowfacultymembers,ScottSternandBillAulet.Wecontinuetobeguidedbyourexperiencewithdecision-makerswhooftenassessandanalyzetherelativestrengthsofchoseninnovationecosystemsandthusneedasetofbasicmetricstoguidethem.Assuch,wepresentthisWorkingPapertocapturewhatwehavelearnedsofar,andtoseekfurtherfeedbackfromresearchers,practitionersanddecision-makers.

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Manystakeholdersareassessingtheirecosystems,andusingavarietyofnamestodescribethem.Thougharangeoflabelsiswidelyused(includingbyMIT)andshouldberespected,referencesinourWorkingPapershouldbeconsideredasbeingtothefuller(ifnotpithy)‘innovation-drivenentrepreneurshipecosystems’(‘iEcosystems’).1Whatmattersisthatwearealltryingtounderstandthesamebasicphenomena.GovernmentsandUniversities,forexample,maydefinetheir‘home’ecosystemsfromaninnovationperspective,andundertakeassessmentofeghowtheycomparetootherbenchmarkregions.Ontheotherhand,Corporates,CapitalinvestorsorevenmobileEntrepreneursmaybecomparinganumberofecosystems–anddefiningtheminavarietyofways-tomakeadecisionastoapossiblelocationforspecificinnovationactivity,entrepreneurshipventuresand/orcollaboration.Aswithanysuchanalysis,therearealreadymanyapproaches,‘ecosystem’definitionsanddatasourcesthatarerelevant(andwereviewthemostwidelyusedandrelevantofthesehere).Indeed,inrecentyears,anumberoforganizationshavesoughttocreatemetricsandindicestoranklocationsonbothinnovationand/orentrepreneurshipdimensions,andindoingsohaveprovidedorderingsofcities,regionsorcountries.Thisis,atonelevel,awelcomestepforwardsbeyondjustlookingatsayR&Dfor‘innovation’orthenumberofnewenterprisesfor‘entrepreneurship’.Thisexplosionofinformation,however,hasnotalwaysbeenaccompaniedbygreaterclarity,norhasitfacilitateddecision-makingbecausetheseapproachesareoftenhardtodecipherorarebasedonacollectionofmeasuresthatarenotclearlydefined.Manydonothaveglobalcoverage(butarelimitedtotheEUorUS),whereasothersdonotdifferentiate‘innovation’and'entrepreneurship'.FromourMITperspective,theyoftenalsoconflatethe'inputs'forinnovationandentrepreneurship(andfailtospecifywhatareintermediate'outputs'),sodonotprovideaclearguidefordecision-makers.Ourapproach,asoutlinedinthisWorkingPaper,istodevelopasimplebutcomprehensivemeasurementapproach,informedbyourMITtheoryofinnovation-drivenentrepreneurshipandtheecosystems(‘iEcosystems’)inwhichitflourishes.Whereourapproachaddsvalueisprovidingaclearframeworkforanalyzingsuchecosystems–our'theory'ifyouwill-andthenselectingmeasuresaccordingly.

1MITitselfanditsfacultyareassociatedwithavarietyofsuch‘ecosystem’names:eg“EntrepreneurialEcosystems”(https://portal.scotlandeuropa.com/event-listings/view/36);“iEcosystems”(https://innovation.mit.edu/event/mit-iecosystem-symposium/);“Innovationecosystems”(https://executive.mit.edu/openenrollment/program/innovation-ecosystems-a-new-approach-to-accelerating-corporate-innovation-and-entrepreneurship/#.Wb1uFq3MxE4).

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Withinourframework,itisthekeydifferentiationbetweenthe‘innovation’and‘entrepreneurship’capacities,andamong‘inputs’and‘outputs’,thatplacesthisapartfrommostothermethods.Withourframeworkasastartingpoint,weengageinadeepassessmentofthemostwidelyavailableandusefulmeasuresandindices.Buildingonthedatafoundationsbuiltbyothers,wesuggestarangeofbasicmetricsthatallowforglobalcomparisonofmoreconsistentlyavailablenationaldata.SubsequentworkwilladdressotherelementsofourMITframework,mostimportantlytherangeof‘impact’measuresthatcanbemostappropriatelyusedtotracktheprogressofan‘iEcosystem’.Thisincludesidentifyingandanalyzingcomparableregionalandlocaldata,whichareoftenhardertocollatethanthehigh-levelnationaldata,andyetareimportanttoassessingregionalimpact.Insomeways,thedataforspecific‘policyand/orprograminterventions’(PPIs)mightbeeasiertocollectandthenassess,butthisshouldbedonewithaneyetothebasicnational-levelmetrics,andwhatcanbefoundattheregionalandlocallevels.

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1. A Framework for analyzing ‘innovation Ecosystems’ Todefinethephenomenaofwhatarecommonlydescribedas‘innovationecosystems’or'entrepreneurshipecosystems'(iEcosystems),wedrawonourownanalysisof'innovation-drivenentrepreneurship'andthatofourMITcolleagueswithwhomwehavecollaboratedonmuchofthismaterial.2Wearealsoguidedbylessonslearnedfromteachingthisframeworkinarangeofglobalsettingsandwithdecision-makersfromdifferentstakeholdergroups,butespeciallyfromgovernmentandcorporates.3WhilenottheplacetoexplorealltheintellectualfoundationsoftheMITiEcosystemframework,theapproachhereemphasizesamorecomprehensiveunderstandingofthe‘system’thatunderpinsinnovation-drivenentrepreneurshipintheseecosystems.Forsimplicity,webreakthe‘system’downintofourcoreelements(seeFigurebelow).Takentogether,theseelementsleadto‘comparativeadvantage’andultimately(toagreaterorlesserextent)‘impact’withinaniEcosystem.

--Fig.One:the‘system’forinnovation-drivenentrepreneurship--

2WeparticularlyrecognizetheworkthatwehavedoneincollaborationwithourMITcolleagues–ProfessorScottSternandProfessorofPracticeBillAulet.3Teachinghasraisedandrefinedthismaterialinanumberofsettings,bothincustomandExecEdsettings,andalsoinformalcourses:‘Innovation-DrivenEntrepreneurialAdvantage’(IDEA,2011+),‘RegionalEntrepreneurshipAccelerationLab’(REAL,2012+),‘RegionalEntrepreneurshipAccelerationProgram’(REAP,2012+),‘Innovationdiplomats’(2014+)and‘InnovationEcosystems’(2016+).

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Workingfromthebottomofthesystemup,weexploreeachoftheseelementsinturn.Foundationalinstitutionsarethoseinstitutions,rules,practicesandnormsthatareoftentakenforgranted,butensurethatinvestmentsinawidevarietyofcapacitiesandassetscanbeeffectivelyprotectedandleveragedtothebenefitoftheeconomy.Atthecore,theyincluderuleoflaw(andconverselylackofcorruption),protectionofpropertyrights(especiallyforintellectualproperty),financialinstitutions,freedomfornewideas(includingscientificopenness),andgeneraleaseofdoingbusiness.Thetwo‘capacities’arethetwinenginesofthe‘system’,restingonthefoundationalinstitutionsandcombiningdistinctive‘inputs’toultimatelydriveimpact,oftenintheformof‘innovation-drivenenterprises’(IDEs),ratherthanstandard‘small/medium-sizedenterprises’(SMEs).4AkeycontributionfromMIT’sworkoninnovation,entrepreneurshipandecosystemsistoseparateoutthesetwocapacities:5

o InnovationCapacity(I-Cap)is,inourdefinition,thecapacityofaplace–acity,aregionoranation–todevelop‘new-to-the-world’ideasandtotakethemfrom‘inceptiontoimpact’(whetherthisbetoeconomic,socialand/orenvironmentalimpact).Inotherwords,innovationcapacitycoversnotonlythedevelopmentofbasicscienceandresearchbutalsothetranslationoftheir‘solutions’intousefulproducts,technologiesand/orservicesthattrulysolveproblems.

o EntrepreneurshipCapacity(E-Cap)emphasizesasubsetofthemoregeneral

entrepreneurialcapabilityandconditionsforformingenterprises:thelattersupportsalltypesofentrepreneurship(leadingmostlytoSMEsratherthan‘IDEs’).6Theaspectsof‘E-Cap’mostinteresttoinnovationaretheonessupportingthis'innovation-driven’sideofentrepreneurshipcapacity,tailoredtosupportthegrowthofIDEsinaspecificplace–suchasacity,regionornation.

Buildingonfoundationalinstitutions,itisthecombinationof(andlinkagesbetween)innovationandentrepreneurshipcapacitieswithinacity,regionornationthatdrivesimpact.However,innovation-andentrepreneurial-capacityarenotalwaysgeneralassetsdevelopedinaregionalcontext:theyaremorelikelytobespecializedaroundareasofexpertise,whichwethinkofasabroaderformofcomparativeadvantage. 4ThisdistinctionbetweenSMEsand‘Innovation-DrivenEnterprises’(IDEs)highlightsthedistinctivesetofstart-upsthatareentrepreneurialbutalsohaveasourceofadvantagegroundedininnovation(seeAulet&Murray2012).5Forthiskeyandrecentinsightofseparatecapacities,wearegratefultoProfessorScottSternandProfessorFionaMurray.Thisbuildsontheground-breakingworkbyPorter,FurmanandStern(1999)on‘innovativecapacity’.6Seeourdraft‘TypologyonEnterprises’workingpaper,whichlooksattherangeoftheseinvariousglobally-availabledefinitions,frommicro-to‘smallandmedium-sizedenterprises(SMEs).

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ComparativeAdvantageofanyregion'seconomyisbasedonspecificareasofstrengththatdifferentiateitfromothersaroundit,increasinglyglobally.7For‘innovation-drivenentrepreneurshipecosystems’(iEcosystems),such‘comparativeadvantage’isshapedbyunderlyingstrengthsinbothinnovationandentrepreneurshipcapacitiesbutisalsodistinctive.Aregion’scomparativeadvantagewilloftenfindexpressioningeographicalclustersorindustrialsectors-asagglomerationandspecializationremainfactorseveninthislatestphaseoftheindustrialrevolution–whethertheybeclustersinthelifesciences,ITservicesoreducation.Wehavealsofoundthatcomparativeadvantagecanbeusefullyexpressednotonlyinbackwardreflectionuponexisting,well-definedclusters,butinforward-leaningareasofexpertiseandspecializatione.g.‘Oceans’,SmartCityInfrastructure,etc.InthecaseofaregionlikeGreaterBoston,forexample,this‘comparativeadvantage’isinlifesciences,and,recently,cleanenergyandhardware.ForPittsburgh,itisrobotics:forSingapore,maybe‘smartcityinfrastructure’.IncountriessuchasChileandMorocco,potentialsourcesofcomparativeadvantagefortheecosystemarelikelyfocusedonmining-itssafety,waterandenergyneeds,andnewusesforspecificminerals.Theresulting‘impact’comesfromthecombinationofinnovation-andentrepreneurial-capacities,whencombinedwithcorecomparativeadvantageandoftentakingspecificactionsthrough‘programandpolicyinterventions’(PPIs).SuchPPIscanbemeasuredinavarietyofdifferentways,andsuchmeasurementiskeytotheirevaluation.Thekey‘impact’metricsare,inpart,amatterofchoiceandprioritisationonthepartofthedecision-makersandiEcosystemstakeholders.Itshouldberecognizedthateventhemostprofoundinterventionsinthesystemwillonlydrivemeasurablechangesinimpactoverthelongerrun.Atthehighestlevel,impactcanbecapturedintheformofeconomicorsocialprogressindicators.Foreconomicprogress,themostcommonlyusedmetricisGDPpercapita:thisisnotwithoutitsproblems,butitiswidelyused.Forsocialprogress,indicatorssuchastheSocialProgressIndex(SPI)orUNSustainableDevelopmentGoals(SGDs)maybemoreappropriate.8

7InhisWealthofNations(1776),AdamSmithintroducedtheconceptof“absoluteadvantage”whichDavidRicardodevelopedintowhathassincebeenknownas“comparativeadvantage”fromhisPrinciplesofPoliticaleconomyandTaxation(1817).TheregionalizedgeographicaldimensionwasintroducedbyAlfredMarshallinhistreatmentof“industrialdistricts”inhisPrinciplesofEconomics(1890),anddevelopedbyMichaelPorterwith‘clusters’inhisCompetitiveAdvantageofNations(1990).Likewise,thenotionofflexiblespecialization(PioreandSabel)aswellasthe‘varietiesofcapitalism’literaturealsofocusedattentiononparticularregionalexpertise. 8SPI(https://www.socialprogressindex.com)andUNSDGs(https://sustainabledevelopment.un.org).

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Otherdecision-makerswilldefine‘impact’differently–suchasqualitativechangese.g.inlocalattitudestowardssuchentrepreneurship–andthereforemeasureitwithdifferent(oftensurvey-based)metrics,tailoredtothestrategiesandaspirationsofkeystakeholders.Atamoregranularlevel,impactcanbecapturedintermsofthetypesofstart-upsthatarebeingcreatedandgrowwithintheecosystem–egthelevelofjobcreationandlevelsofvaluation.Onenovelmetricofparticularinterestistheriseinthenumberandqualityof‘innovation-drivenenterprises’(IDEs)-enterprisesthatblendinnovationandentrepreneurship,andindoingsohavethepotentialforextraordinaryjobcreationandthepotentialtodevelopsolutionstoimportantproblems(atascalethatismoresignificantthantraditionalsmall/medium-sizedenterprise(SME)start-ups).9Intheevenshorterrun,itispossibletomeasuretheimpactofspecificPPIinterventionsinanecosystemthattakeplaceattheregional(ornational)level,where‘impact’mightbemosteasilytargetedandevaluated.Inthosecases,themetricsrequiredtoevaluatetheintervention–whetheritbeapolicyoraprogram–requireawell-designedsetofmetricstocaptureearlyimpact.

9TheseIDEsareasubsetofallstart-ups,manyofwhichwillbeonthetrajectoryoflessexponentialgrowth.Assuch,theyareacriticalvehicleforadvancingnewsolutionstoimportantproblems,forlongrunjobcreation,andultimatelyforeconomicgrowthandsocialprogress.ApproachestomeasuringandmappingsuchIDEsalongan“EntrepreneurialQualityIndex”(EQI)–fromhighlevelsofpotentialbasedoninnovation,tomuchlowerlevels,areunderdevelopmentbyProfessorScottSternandJorgeGuzman.See,forexample,http://www.startupmaps.us/

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2. Common Indices of Innovation and Rankings for Entrepreneurship Inourexperience,achallengeformostdecision-makers,andforallthoseworkingwithincomplexinnovationecosystems,istodevelopasimplesetofmetricstoevaluatethecurrent‘as-is’stateoftheirecosystem,toassessitsperformancerelativetootherbenchmarklocations,toinformchoicesandthentotrackprogressandevaluateimpact.Thesechallengesariseforanumberofdifferentreasons:

• First,'innovation'and'entrepreneurship'arehardtoassess,asisthe‘impact’resultingfromchoices:incaseswhere‘innovation-drivenenterprises’arethesignofsuccess,theycanbecomplextomeasureinandofthemselves,especiallyastheytaketimetoemerge,evenaftersystem-levelchangesandefforts.

• Second,‘impact’arisesfromacomplexunderlying‘system’sothatthereisno

singularmetricthatcancapturethestateofthatecosystem,andsoinsteadweneedmeasuresofvarioussystemelements.

• Third,I-CapandE-Caparetheresultofmultipleinputs(aswellasofeffective

transformationoftheseinto‘outputs’for‘comparativeadvantage’and‘impact’)leadingtotheneedforabasketofinputmeasuresforeachcapacity.

• Fourth,thereiswidespreaddisagreementandalackonclarityinthesortsof

measuresthatareuseful,leadingtoaproliferationofmeasuresandindices,withvarious‘rankings’placingnationsandregionsinapeckingorderwithouttheunderlyingassumptions(andcalculations)alwaysbeingsoclear.

Theriseinpopularityofinnovation‘indices’andentrepreneurship'rankings’meansthatdecision-makersarepresentedwithevermoreinformationonwhichtobasedecisions,butwithlessguidanceonhowtoassesstheseordeterminethemostappropriatemeasuresfortheirecosystemorprogram/policyinterventions.Beforeturningtoourownproposedseriesofmetrics,wereview(andprovidelimitedcommentaryon)arangeofthemostcommonlyusedindices–andtheirbasketsofmeasures-soastobeabletocompareourapproachtotheseexistingones,andshowwhyweseetheneedforadditionalcontributions(suchasourown)inthisalreadycrowdedfield!Whatfollowsisabriefsummaryofthemostwidely-usedrankingsandindices:furtherdetailsonthese(andtheirunderlyingdata)aresetoutinAppendixA.

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First,weexploreinnovation-orientedindicesandmeasuresincludingtheGlobalCompetitivenessIndex(GCI,whichisbroaderthaninnovation),BloombergInnovationIndex(BII),GlobalInnovationIndex(GII),andtheEuropeanInnovationScorecard(EIS).TheGlobalCompetitivenessIndex(GCI)hasbeenpublishedeveryyearsince2004,bytheWorldEconomicForum(WEF).Itlooksatthesetsofinstitutions,policies,andfactorsthatdeterminethelevelofproductivityofacountry.TheIndexwasdevelopedbyProfSala-i-MartinandProf.ArtadiandintegratedtheGrowthDevelopmentIndexbyProfSachsandBusinessCompetitivenessIndexbyProfPorter.GCIreliesheavilyontheWEF'sExecutiveOpinionSurveysandstructuresitselfonto12pillarsthatmakeuparegion’scompetitiveness,rangingfromInstitutionstoGoodMarketEfficiencies.TheGCI’sInnovationPillarcorrelatesmostcloselywiththeI-Cap‘demand’componentoftheMITFramework.Givenitsscope,GCIalsoprovidesinformationthatisusefullylinkedtoouranalysisof“Foundations”andlessrelevantforI-CapandE-CapalthoughseveralofthemeasuresintheGCIdoallowustoexploreconceptsforwhichsurvey-basedopinionsarerelevantandoftentheonlymeansofmeasurement.Morenarrowlyfocusedoninnovation,theBloombergInnovationIndex(BII)hasbeenpublishedbytheBloombergGroupsince2012.Itranksthetop50mostinnovativecountriesthatareratedagainst6-7parameters.Theseparametersfocusonlyoninnovationbutareagoodmeasureofinnovationandtheselectionofvariablesmakestheindexrobustandratherstraightforward.However,itsstrengthisalsoitsweakness:byfocusingsolelyonsofewparameters,itmissesascopeofinformationneededtoassesstheinnovation-capacity.Moreover,severaloftheindexvariablese.g.patents,areelementswewoulddeemtobeoutputsofinnovationcapacity(atleastoutputsalongthepathtostrongI-Cap)andsomixinputsandoutputsinawaythatmaketheleversofchangehardtoidentify.GlobalInnovationIndex(GII)ispublishedbyCornell,INSEAD,andtheWIPO,andrankscountriesbytheircapacityfor,andsuccessin,innovation.Thereporthasbeenpublishedannuallysince2007.GIIrankscountriesbasedonacollectionofover80varioussingularandcomposedindicatorstostudytheinnovationanditsenvironment.GIIisoneoftheclosestindexestotheMITFramework,asanumberoftheseindividualvariablesoverlapping,butitdoesnotaddressE-Capwithprecision.TheEuropeanInnovationScoreboard(EIS)isanannualpublicationbytheEuropeanCommission,preparedbyMaastrichtUniversity.ItprovidesacomparativeanalysisofinnovationperformanceinEUandotherEuropeancountriesandregionalneighbors.Theearliesteditioninaconsolidatedstateisfrom2010,althoughearliereditions(with

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aslightlydifferentsetofparameters)goingbackto2007areavailable.TheRegionalInnovationScoreboardisaregionalextensionoftheEIS,publishedeverytwoyears.TheEIScollectsanumberofparametersthatfitintotheMITframework,butitsscopeislimitedtoEuropeanditssurroundings.Withrespecttoentrepreneurship-focusedrankings,wehavereviewedthreeindices:theGlobalEntrepreneurshipMonitor(GEM),theGlobalEntrepreneurshipIndex(GEI)andtheGlobalStartupEcosystemReport.TheGlobalEntrepreneurshipMonitor(GEM)isdevelopedbyaconsortiumofcorporations,universities,topresearchinstitutionsandgovernmentlaboratoriesthatannuallypublishesstudiesonthestateofentrepreneurshipinover70countries.Itconductstheresearchthroughaseriesofinterviewsandsurveys:anannualsurveyandinterviewsofarepresentativesampleofthepopulation(theAdultSurveyPopulation)andasurveyoftheexpertsinthecountry(theNationalExpertSurvey).ThisGEMservesasaprimarysourceformanyotherentrepreneurialindices.Wewilldrawuponsomeofitsmeasuresofentrepreneurialculture/incentivesasthebest,andmostcomparative,measuresoftheunderlyingattitudestowardsentrepreneurship.TheGlobalEntrepreneurshipIndex(GEI)wascreatedbytheGlobalEntrepreneurshipandDevelopmentInstitute(GEDI),developedbyImperialCollegeLondon,theLondonSchoolofEconomics,theUniversityofPecsandGeorgeMasonUniversity.Itcreatesaframeworktostudyindividualandinstitutionalfactorsthatleadtoentrepreneurialactivities.TheIndexfocusesonstudyingtheentrepreneurshipenvironmentanditsoutputs,lookingatanumberofparameterstodefineattitudes,abilities,andaspirationsofindividuals,andinstitutionalfactorsaffectingthose.Often,these‘individual-institutional’factorsarefurtherpaired,e.g.perceptionofentrepreneurshipasacareerchoiceandcorruptionindexintoasinglevariable,loweringtheresolutionofthestudy.TnonethelessausefulindexforE-Cap,albeitonewithmanydifferentelements,againmixinginputsandoutputsinawaythatmakesitchallengingtoidentifyleversofchange.10GlobalStartupEcosystemReportisanewstudyfrom2017byStartupGenomethatlooksintoanumberofselectedtechEcosystems.Itlooksingreatdetailatthedemographics,performing,fundingandinfrastructure.Aparticularfocusisontalent

10ThisframeworkisfurtherextendedtoaFemaleEntrepreneurshipIndex,andaRegionalEntrepreneurshipIndexfortheEuropeanUnion.

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andotherresourceattractionforselectedareas,however,thisscopeisalsothelimitofthestudy.

Lastlyweexploretherangeofuniquesourcesofdatathatprovidemanyofthekeydatainputsintotheindicesdefinedabove,andwhichserveasthebedrockofourapproachtosystematicallymeasuringinnovationecosystems(atthenationallevel).TheseincludetheWorldBank,UNESCO,andOECD.

TheWorldBank(WB)WorldDevelopmentIndicators(WDI)istheBank’sprimarycollectionofmetrics,collectedfromofficialsourcesfromaroundtheworld.Itcoversover1500variables.Thedataisavailablefor1990(forselectedcountries)until2015(latesttodate)andiscomprehensiveinitscoverageincludingupto264countriesforsomemeasuresinsomeyears.Itcoversawealthofdetaileddataaboutthestructureofthenationaleconomy,agriculture,energyandeducation.

UNESCO’sInstituteforStatistics(UIS)isaparticularlyrobustsourceforR&Ddata,whichiscollectedthroughtheInstitute’ssurveyonR&Dstatistics(incollaborationwiththeOECD)andavailablefrom1996untilthecurrentyear.TheUISalsoworksincollaborationwiththeLatinAmericanNetworkonScienceandTechnologyindicatorsandtheAfricanUnion.Itscoverageisforover70countriesfordataavailableannuallyorbi-annually.ItisusedtotrackprogressontheUNSDGsespeciallyforTarget9.5whichaskscountriesto“Enhancescientificresearch,upgradethetechnologicalcapabilitiesofindustrialsectorsinallcountries,inparticulardevelopingcountries,including,by2030,encouraginginnovationandsubstantiallyincreasingthenumberofresearchanddevelopmentworkersper1millionpeopleandpublicandprivateresearchanddevelopmentspending.”Itsmorerecentinnovationdatacollectionemphasizesthetypesandoriginsofinnovation(e.g.product,process,organizationalormarket)aswellaswhereinnovationtakesplace(inuniversities,contractors,firmsetc.)ItprovidesnewinsightsintoinnovationcapacitybeyondR&Dspending.

TheOECDprovidescomprehensiveinnovationdatabutonlyforthesubsetofOECDcountriesthatitengages.AsthedeveloperoftheOsloManual,itprovidescriticalguidanceonthecollectionofinnovationdataandstatisticsfromindustry.OECDincreasinglygathersdataonentrepreneurshipaswellasinnovation.

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3. MIT’s Approach to ‘Innovation-driven Entrepreneurship’ Metrics Giventhemanyindicesandplethoraofdataoutlinedabove,wehavechosenanalternativeapproachthatstartswithourdefinitionofthe‘system’,thenbreakseachpartintoalimitedseriesofrelevantmetrics.Inlinewithourmodelofthe‘system’,wethereforeselectmetricsforeachofthecorecomponents,asfollows:

i. Innovation-drivenentrepreneurship‘impact’

ii. ComparativeAdvantageofregions

iii. InnovationandEntrepreneurshipCapacities

iv. FoundationalInstitutions

Inselectingthespecificmeasures,weareguidedbythefollowingsimplecriteria:

1. Measuresthataresimple,self-explanatoryandasclosetotheunderlyingphenomenaaspossible;

2. Measuresthatcapturedistinctiveelementsofthesystemwithaslittleduplicationoroverlapaspossible,soastobeparsimonious;

3. Measuresthatarewidelyavailableacrosscountriesaroundtheworld(notjusttheOECD,EUorUS)whilerecognizingthatthesemeasuresarenotalwaysavailableatthesub-nationalregionallevel;

4. Measuresthatmightbereplicatedormeasuredwithsimplicitybycountrieswhodonothaveexistingcoverage;

5. Measuresthatareobjectivegivenpreferenceoverthosethataresubjective,expectwherethosemeasuresarenotavailable;

6. Measuresthataredirectlycapturedratherthanthosethatcontainmultipleelements.

InthisWorkingPaper,westartbysettingoutmetricsforthebaseoftheecosystempyramid–itsFoundationalInstitutions.Wethenturntothecoreofourwork–theselectionofasmallbasketformetricswhicharethecritical‘inputs’intoboththeinnovationandentrepreneurshipcapacitiesofthesystem.Wethenaddresstheintermediate‘outputs’fromthesecapacities,andthe‘comparativeadvantage’(includingregionalclusters)whichisshapedbythesecapacities.Furtherworkwillexamineanddiscussarangeofdifferentapproachestocapturingthe’impact’desiredforspecificecosystems.

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3a. Measuring ‘Foundational Institutions’ Manyorganizationsandscholarshaveexploredtheimportanceoffoundationalinstitutionsthatservetosupportbroadereconomicdevelopmentinanation,whichhasanobviousread-acrosstotheestablishmentofavibrantinnovationecosystemwithinit.Belowwehaveselectedashortlistofmetricsfromtheserankingsthatcapturesomeofthekeyfoundationalinstitutions.Ofcourse,theseindicesprovidemuchgreaterdepthwhichmayberelevantforsomedecision-makersversusothersandinsomespecificcontexts.Forour‘innovation’purposes,weconsiderahandfulofmeasuresthatcaptureourconceptionoffoundationalinstitutions(andthestrengthofthese),includingruleoflaw,propertyrights,easeofdoingbusiness,andlevelsofcorruption.FromtheWorldBankGroup’s(WB)DoingBusiness(DB)11site,welookatheadline‘Easeofdoingbusiness’(DB)rankingsbutalsotoanumberofitsconstituentinnovation-relatedmetrics(eg‘Topics’likestartingabusiness,resolvinginsolvency,etc)andtheir‘Distancetofrontier’(DF).FromtheHeritageFoundation’sIndexofEconomicFreedom12(IEF),welookbelowtheheadline‘overallscore’andwithinitsfourkeycategoriesforparticularareasofinstitutionalconcern(egpropertyrights).Finally,fromTransparencyInternational(TI),theheadlinefiguresfromitsCorruptionPerceptionsIndexprovideausefulbenchmarkforcountries(byperception)andtheoveralltrends.Easeofdoingbusiness(WB) CompositecountryrankingfromtheWorldBankacross10

topicsrelevanttoeaseofoperatingprivate-sectorfirms.Startingabusiness(WB) Rankingofthesimplicityofstartinganewbusinessfor

entrepreneursincorporatingandregisteringanewfirm.Payingtaxes(WB) Rankingleveloftaxratesandadministrativeburdenintax

paymentfortypicalmedium-sizefirms.ResolvingInsolvency(WB) Rankinglevelofweaknessesininsolvencylawandmain

bottlenecksintheprocess.Enforcingcontracts(WB) Rankingleveloftime/costforresolvingacommercialdispute

includingdegreeofgoodpracticesinthecourtsystem.PropertyRights(IEF) Scoreacrossthestrengthoflawsallowingindividualsto

accumulatefivetypesofpropertyrights(includingIPRs).GovernmentIntegrity(IEF) Scorecapturinglevelsoftrust,transparencyandabsenceof

corruption.LaborFreedom(IEF) Scorecapturingflexibilityandefficiencyofacountry’slabor

marketincludinghindrancetohiringetc.Tradefreedom(IEF) Scorecapturingtariffandnon-tariffbarrierstoimportsand

exports.CorruptionPerceptionsIndex(TI) Overallrankingofcountriesintheircompositelevelof

perceivedcorruption(highrankingimplieshighcorruption).

11http://www.doingbusiness.org12http://www.heritage.org/index/

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3b. Measuring Innovation and Entrepreneurship Capacities Together,I-CapandE-Capcapturethesensethatasystemiscapableoftwoparticularactivities:innovationandentrepreneurshiprespectively.Asastartingpoint,weusefullythinkofa‘capacity’asasortof‘productionfunction’-i.e.awayofrelatingaseriesofwell-definedinputstotheoutputs,inthiscaseofentrepreneurialorinnovativecapacityoutputs.Throughadecision-makinglens,itiscriticalthattheinputsintotheproductionfunctionbedefinedandthenoptimizedfor-oratleastmadeasappropriateaspossiblefor–innovation(movingideasfrominceptione.g.inthelabthroughtoimpactinavarietyoforganizationalsettingsnotjustinstart-upenterprises)andentrepreneurship(thecreationofstart-upsandthescale-upofallnewenterprises).WeconsiderfivecriticalinputsintotheI-CapandE-Capproductionfunctions,basedonMITresearchaboutthedriversof‘innovation-drivenentrepreneurship’inavarietyoflocations–somewithintheUnitedStatesbutalsofromregionsworldwide(includingSingapore,Tokyo,Finland,Scotland,London,Israel,etc.).

--Figure2:MITI-Cap/E-Capframework–Thissimplifiedframeworkallowsdecision-makerstodeterminetheirsystems’greatestpointsofweaknessandthusidentifythepointsofleverage.Thesefivecomponentsare:• HumanCapital(people)–theappropriatehumantalent(fromwithinaregion,or

attractedintoaregion)withrelevanteducation,trainingandexperienceforeitherinnovationorentrepreneurship(orboth).

• Funding–avarietyoftypesofcapital(fromthepublicandprivatesectors)that

supportinnovationandentrepreneurshipbothattheiroriginsbutalsothroughoutthejourneyfromideatoimpact,orstart-uptoscale-up.

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• Infrastructure–thephysicalinfrastructurethatisnecessarytosupportinnovation

andentrepreneurshipattheirdifferentstages–includingspaceaswellasequipmentrequiredfordiscovery,productionandsupplychains,etc.

• Demand–thelevelandnatureofspecializeddemandfortheoutputsof

innovationandentrepreneurialcapacitiessuppliedbydifferentorganizationsinthesystem.

• Culture&incentives–thenatureofrolemodelsandindividualswhoare

celebrated,thesocialnorms(‘culture’)thatshapeacceptablecareerchoicesandtheincentivesthatshapeindividualandteambehaviors.

ForeachofthedifferentinputsintoI-CapandE-Cap,weselectabasketofmeasuresthatcapturesthestrengthofthesespecificelements(withoutbeingtoorepetitiveandoverlapping).Startingbelowweoutlineeachoftheseinturn.

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3b.i. Measuring Innovation Capacity (I-Cap) Inputs

Human Capital: Thenumberandqualityofinnovationsthatmovefromideatoimpactarecriticallydependentonwhoistrainedinthevariousskillsthatareessentialtotheinnovationprocessandtheavailabilityofsuchhigh-qualityhumantalentintheregionofstudy.Humancapitaldependsonthequalityofeducation,thelevelofeducationalattainmentandemploymentintheirfields.WeincludefiveelementsinmeasuringhumancapitalasaninputintoI-Cap.

Funding: ResearchandDevelopment(R&D)aswellasthelaterstagesofinnovationisanexpensiveandriskyprocessthatrequiresalotoffinancialsupport.CountriesvaryinthedegreetheyprovideforR&D,withsomededicatingalargerportionofpublicfunding,othersleavingittothebusinesssectors.WeincludefourelementsrepresentingfundingasaninputintoI-Cap.

Infrastructure: InfrastructuretosupportI-Capspanstherangefromhighlyspecializedtechnologicalsupporttoinformationaccesssupporte.g.theavailabilityofgoodtelephonyandInternetconnections.Infrastructuretosupportthelaterstagesofinnovationalsocomesthroughsophisticatedproductionprocessesthatcanservetoproduceinnovationsatalargescale.WeincludefourelementsinmeasuringbothhardandsoftinfrastructureasaninputintoI-Cap.

Demand: Demandforinnovationcanbeintrinsicand/orextrinsic.Herewestudytheinteractionamonginnovatorsindifferentsectors,aswellasbuyersandtheirwillingnesstoadoptnewinnovations.Weusethreeelementstomeasuredemand.

Culture & Incentives: CultureandIncentivestopursueinnovationareanimportantfactorinhowmuchI-Capacountryhas.Isthereculturalsupportforthepursuitoftechnologicalinnovations?Howpopularisscienceandengineeringasacourseofstudyinyouryoungpopulationandhowdotheyviewinnovation?Whilehardtoevaluate,fornow,weincludetwoelementsinmeasuringcultureandincentivesasinputsintoI-Cap.

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Innovation Capacity (I-Cap) Inputs HUMANCAPITALQualityofSTEMeducation(GCI) HigherqualityofScience,Technology,EngineeringandMath(STEM)

educationleadstoahigherrateofmoreadvancedtechnologicalbreakthroughsmade

STEMGraduatespercapita(OECD) Arethereenoughgraduatestrainedinthecountrytosustaintheinnovativework?

NewPhDgraduatespercapita(EIS) ArethereenoughgraduatestrainedinresearchfortheanalyticalworkbehindtheR&D?

AvailabilityofScientists&Engineers(GCI)

Arethereenoughscientificandengineersstaffavailabletobeengagedinscientificwork?

Researchers/ProfessionalsengagedinR&Dpermillionpopulation(GII)

R&DcannotbedonewiththespecializedtrainedstaffinemploymentdirectlyinR&D.Arethereenoughresearchersengaged?

FUNDINGR&Dexpenditureasa%GDP(UNESCO)

HowmuchfundingdoesR&DreceiveinyourcountryasapercentageofGDP?

R&Dexpenditurein'000currentPPP$(UNESCO)

HowmuchfundingdoesR&Dreceiveinyourcountryinabsoluteterms?

PublicR&DExpenditureas%oftotalR&Dexpenditure(UNESCO)

HowmuchR&Dissupportedbythegovernmentthroughgrantsoreducation?

BusinessExpenditureas%oftotalR&Dexpenditure(UNESCO)

HowmuchR&Dfinancialsupportiscarriedoutbyprivatesector?

INFRASTRUCTUREICTaccess(GII) Isiteasytohaveaccesstointernetandcommunicationstechnologies?InternetBandwidth(GCI) Couldtheinnovationpacebehamperedbytheinternetspeed?That

couldlimitcommunicationvarietyandspeed.ProductionProcessSophistication(GCI)

Istheworkmostlydoneusinglabor-intensivemethodsandpreviousgenerationsofprocesstechnology,orisitdoneusingleadingandmostefficientprocessingtechnology?

Availabilityoflatesttechnologies(GCI)

Technologicalprogressrequiresmoreandmoresophisticatedscientificandotherequipment.Nothavingaccesstotheseadvancementsmaybeadisadvantagetoaregion’scapacitytoconductresearch.

DEMANDGovernmentprocurementofadvancedtechnology(GCI)

Governmentscancreatedemandfortechnologies,e.g.viamilitaryorcivilcontracts,thatsupportinnovationindirectorindirectways.

University-industryresearchcollaborations(GII)

Industriesthatareworkingclosetouniversitiescancreatedemandforthedirectionofresearchconductedinacademia.Whatisthedegreeofsuchcollaborationsinyourregion?

Trade,Competition&Marketscale(GII)

Isthereadomesticmarketlargeenoughfornewinnovations?Istheaccesstointernationalmarketseasy?Howlargearethebarrierstoentryfornewinnovation?

CULTURE&INCENTIVESQualityofscientificresearchinstitutions(GCI)

Highprestigeandhighqualityofscientificresearchinstitutionscanattracttalentfromthecountryandtheinternationalscope

Graduatesinscience&engineering(%)(GII)

Howalluringisittobechoosingadegreeinscienceandengineering?

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3b.ii. Measuring Entrepreneurship Capacity (E-Cap) Inputs

Human Capital:HumanCapitalforE-Capismorecomplextomeasurebutconceptuallyitreferstothenumberofpeopleinaregion/nationwiththerelevantskillsandknowledgetobuildanenterprisefromstart-upthroughtogrowthandscale.Itmaybederivedfromrelevanteducation,training,andexperience.Giventhatitchallengingtocapturehumancapitalforentrepreneurship,weincludetwoelementsinmeasuringhumancapitalasaninputintoE-Cap.

Funding: Anewenterpriseoftenrequiresinvestmentintheformofexternal‘riskcapital’,rangingfromangelequityfundingorthenVentureCapital(VC),throughtodebtfinanceandcreditarrangements.(Assuch‘riskcapital’isdefinedasfundingforseedandstart-upfinanceaswellaslaterroundsrequiringthecapitalforexpansionandreplacement.InouranalysisofinputsintoE-Cap,weattempttocapturehowaccessiblesuchfundingis.TheguidingquestionsarehowtransparentandefficientisthecreditsystemandhowavailableandcommonistheVCfunding.WethereforeincludefiveelementsinmeasuringfundingasaninputintoE-Cap.

Infrastructure: InfrastructureforE-CapismorebasicthanthatwhichmightberelevantforI-Cap,howeveritincludesanumberofdifferentelements.Welookattheinfrastructurefortelecommunicationsandforgoodstransfer,whichcouldbecrucialforthelifeexpectancyofastart-up,thenumberofInternetusers(asameasureofaccesstoon-lineproductsandservices),andlogisticssoastoexplorethedeliveryofproductsfromsuppliersandtocustomers.Weincludethreeelementstomeasureinfrastructure.

Demand: Demandfornewproductsandservicescouldbepredicted,toacertainextent,bythesizeofthedomesticmarket(atleastasastartingpoint).Isthedomesticmarketattractiveenoughfortheproducts/servicesofanewenterprise?Thedemandcouldalsobeaffectedbythesensitivityofcustomertopriceorqualityoftheproduct.Whatistheshareofmendeclaringthattheywouldrathertakeariskandstartanewbusinessthanworkforsomeoneelse?Weincludetwoelementstocapturedemand.

Culture & Incentives: Cultureiswidelyregardedasanimportantfactorthatmaysupportorinhibitthesuccessofanyentrepreneurial.Inourindexwewishtoexplorehowculturallyacceptedentrepreneurshipis:Arethewinnerscelebratedsufficientlyandifabusinessisafailure,howacceptingisthesociety?Dothesurroundingpoliciesmakeiteasierorharder?Furthermore,whatarethepositiveornegativeincentivesinyourarea?Ifthebusinesswasafailure,doesitaffectone’schancesforstartinganewenterprise?WethereforeincludeatotalofeightelementsinmeasuringcultureandincentivesasaninputintoE-Cap!

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Entrepreneurial Capacity (E-Cap) Inputs HUMANCAPITAL%schoolgradsintertiaryeducation(GII)

Relevanteducationreferstothelevelofeducationpopulationreceives.Whatistheproportionofpeoplewithcompletedsecondaryeducationhowareenrolledinuniversitiesortheirequivalents?

Entrepreneurshipperceivedcapabilities(GEM)

Whatshareoftheadultpopulationwhobelievetheyhavetherequiredskillsandknowledgetostartabusiness?

FUNDINGEasyAccesstoLoans(GCI) Howeasyisitforbusinessestoobtainabankloan?EaseofCredit(GII) Howeasyistotakecreditintermsoflegalrightsandcreditinformation?

Arethelegalrightsstrongenough,andisthelendingfacilitatedenough?Venturecapital(VC)availability(GCI)

Howeasyisitforstart-upentrepreneurswithinnovativebutriskyprojectstoobtainequityfunding?Often,forenterprisesthataredevelopingorusingnewtechnologies,VCistheonlyavailablecapital.

VCinvestment(EIS) WhatistheshareofVCinvestmenttoyourcountry’sGDP?VCdeals(GII) Asanindex,howcommonisVCinthelocation?Howmanydealstake

placeperyear?INFRASTRUCTUREElectricity&telephonyinfrastructure(GCI)

Istheelectricitysupplysufficientlystable?Howmanytelephonesarethereperinhabitants?Whataboutthemobiletelephonesubscriptions?

Numberofinternetusers(UN)

WhatistheshareofInternetusersinaregion?Internetcanbeusedviaacomputer,mobilephone,personaldigitalassistantetc.

Logisticsperformance(WorldBank)

Howwelldevelopedisthelogisticsperformance?Thisincludestheefficiencyofclearanceprocessbycustoms,tradeandtransportationinfrastructure;andrelianceontimelydeliveryofshipments.

DEMANDBuyersophistication(GCI) Onwhatbasisdobuyersmakepurchasedecisions,priceorperformance?DomesticMarketScale(GII) Howlargeisthedomesticmarketsize?CULTURE&INCENTIVESEntrepreneurialintention(GEM)

Howmanypeoplehaveintentionstostartanewbusinesswithinthenextthreeyears?

AttitudestowardsEntrepreneurialRisk(OECD)

Whatistheshareofindividualsdeclaringthattheywouldrathertakeariskandstartanewbusinessthanworkforsomeoneelse?

MaleAttitudestowardsEntrepreneurialRisk(OECD)

Whatistheshareofmendeclaringthattheywouldrathertakeariskandstartanewbusinessthanworkforsomeoneelse?

FemaleAttitudestowardsEntrepreneurialRisk(OECD)

Whatistheshareofwomendeclaringthattheywouldrathertakeariskandstartanewbusinessthanworkforsomeoneelse?

Fearoffailure(GEM) Whatshareoftheadultpopulationwhoindicatethatfearoffailurewouldpreventthemfromsettingupabusiness?

EntrepreneurshipasaGoodCareerchoice(GEM)

Whatshareoftheadultpopulationagreeswiththestatementthatmostpeopleconsiderstartingabusinessasadesirablecareerchoice?

HighStatustoSuccessfulEntrepreneurs(GEM)

Whatshareofpopulationagreeswiththestatementthatintheircountrysuccessfulentrepreneursreceivehighstatus?

BusinessFreedom(HeritageFoundation)

Howlimitedisanindividual’sabilitytoestablishandrunanenterprisewithoutundueinterferencefromthestate?Thisparameterisanimportantdis/incentiveforentrepreneurship.

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3b.iii. Measuring Innovation and Entrepreneurship Capacities' Outputs Whileinnovation-andentrepreneurship-capacitiescanbethoughtofashavingarangeofinputs(thatfitintofivedistinctivecategories),therearealsosomeeasytomeasure(thoughincomplete)outputsofbothinnovation-andentrepreneurship-capacities.Thesesimpleoutputsarenotadequatetocapturethe(ever-changing)impactofan‘innovation-drivenentrepreneurship’ecosystem.Theyarestilluseful,however,asintermediateoutputswithwhichtoevaluatetheeffectivenessofthetwinenginesoftheinnovationandentrepreneurshipcapacities:

- InnovationCapacity(I-Cap)Outputsinclude,atthesimplestlevel,thenumberofresearchpublicationsproducedeachyearbyacountry,and(thoughanincompletewayofmeasuringinnovation)thenumberofpatentapplicationsfiledand/orgrantedeachyear.Obviously,alltheusualcaveatsaboutthelimitationsofusingpublicationsandpatentsasmeasuresofinnovationapply,buttheyremainusefuloutput(ratherthanimpact)measures,especiallywhenconsideredovertimeoragainstothernations.

- EntrepreneurialCapacity(E-Cap)Outputsinclude,inthemostsimplisticfashion,

thenumberofnewstart-upenterprisesestablishedeachyear.Thisisagoodmeasureofbasicentrepreneurshipcapacityoutputthatcanbefurtherrefinedwhenweconsider‘impact’measurestoconsidertheentrepreneurialquality(orpotential)ofthesestart-ups,andtheiroutcomeseg.venturefundraising,jobcreation,publiclisting,etc.

AllofthesemeasurescanbeconsideredintermsofpopulationandGDP.ThesetwodifferentdenominatorsallowtheoutputsofI-CapandE-Captobecomparedmoregloballyagainstabaselineofeitherpopulationoreconomicscale.ByestablishingsomesimplebenchmarksfortheeffectivenessoftheenginesofI-CapandE-Capacity,itispossibletodevelopanunderstandingofwhereacountryofinterestlieswithinoneofthefourI-Cap/E-Capquadrants:

• highI-Cap/highE-Cap(forexampleIsraelandpartsoftheUnitedStates),• highI-Cap/lowE-Cap(forexamplecountriessuchasSouthKorea);• lowI-Cap/highE-Cap(forexampleThailand,Nigeriaetc.);andfinally• lowI-Cap/lowE-Cap(thoughthisisrare).

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3c. Measuring the ‘Comparative Advantage’ of Regions Aswenotedinourintroduction,the‘comparativeadvantage’ofaregionisbasedonspecificareasofstrengththatdifferentiateitfromothersaroundit–locallyorglobally.Insomeinstances,suchadvantageariseswithinacountryhavingthatregionbethemostsuccessfulinthenation.Forexample,BangaloreisIndia’smostsuccessfulregionforinformationtechnology,CambridgeissucharegionforlifesciencesintheUnitedKingdom,andBerlinforcreativemediainGermany.Ontheotherhand,someregionshavecomparativeadvantagethatisglobalinstature–inotherwords,theregionisuniqueontheglobalstage.SiliconValleyisthemostobviousexample,havingglobalcomparativeadvantageinarangeofsectorsincludingB2CandB2Bsoftwareandmuchhardware.Similarly,Boston’sKendallSquarehasemergedastheleadinggloballocationwithacomparativeadvantageinthelifescience.Comparativeadvantagecanmosteasilybemeasuredthroughanassessmentoftheexistingeconomic‘clusters’inagivenregion–whichidentifiestherelativestrengthsinthatplace.Therelativenationalorinternationalstandingareoftenmoredifficulttomeasure,althoughthiscanbedoneatanationalscale.Such‘cluster’analysishasbeenundertakenfortheUnitedStates,Europeandotherselectednations.13Assuch,itcanprovideausefulstartingpointforregionsthataresocoveredtoinvestigatetheir‘asis’competitivestate.Someregionsfindthemselvesseekingcompetitiveadvantageina‘cluster’thatisnotpartofthetraditionallist,suchas‘oceans’forseveralborderingthenorthAtlanticwhichhaverecentlyidentifieditastheirclusterfocusofchoice.Aswellasexploringstrongclusters,itisalsousefultofindmeasuresthatcapturethecollectionofspecializedassets,criticaltalentanduniquechallengesthatmightbecraftedinto‘comparativeadvantage’inamoreforward-lookingfashion.Forexample,inChile,theobviousstrengthsintheminingclusterarebeingfusedwithchallengesinmining-relatedhealth,environmentandenergysoastoprovideaplatformforanewgenerationofinnovation-drivenentrepreneurialstartups.London’semergenceasa“TechCity”builtoncreativetalentinmediaandarts,fromsoftwaretalentunleashedfromthefinancialsectorin2008,andthepresenceofmanymulti-nationalheadquartersinthecity.

13ThemostfullydevelopedmeasuresofeconomicclustershavebeendevelopedbyDelgado,PorterandSternaspartoftheUSClusterMappingProject.AndbytheEuropeanClusterobservatory.

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Ofcourse,measuringsuchcomparativeadvantageoreventhefoundationsofadvantageisnotsimple.Anditisnotlikelytobesuitableforthedevelopmentandapplicationofstandardmetricsintheveinofotherelementsofourframework.Wethereforerecommendthatregionsworkwiththeirstakeholderstoexploredifferentperspectivesandopinionsonthecurrentsourcesofcomparativeadvantagee.g.existingstrongsectors,andfuturesourcesofcomparativeadvantagesuchaspotentiallypowerfulfutureopportunitiesbasedonkeyassets,talentandchallenges.Inallthiswork,itiscriticaltoconsiderthedegreetowhichanycluster,assetortalentisnational,continental,orglobal.Thisoftenrequiresanhonestandclear-eyedassessment:asanexample,atoneperiodintime,over40ofthestatesintheUSclaimedtobe‘inthetopthree’lifescienceclusters.Ontheotherhand,aregionsuchassouthWales(intheUK)hadnoteditsnationalcomparativeadvantageincompoundsemi-conductors,whileinfactitwasactuallyglobalinitsdegreeofadvantage.Thevalidityofclaimsto‘globaladvantage’islikelytoberarebecause,giventhenaturalnatureofagglomeration,onlyasmallnumberofregionswillrisetotrulyglobalsignificanceinanygiveneconomicarena.Fromameasurementperspective,wewouldthereforeadvisedevelopingasimplecollectionofmeasuresandmetrics:

Leadingcurrenteconomicclusters

Rankingthethreetofourstrongesteconomicsectorsorclustersintheregion,withadditionalrankinginformationonthedegreeofcompetitivenessofthosesectors/clustersattheinternationallevel.

Leadingassets Rankingofthethreemostimportantassetsintheregione.g.physicalassets.

Leadingareasofexpertiseandtalent

Rankingofthethreemostimportantareasofexpertiseandtalentintheregione.g.AI,creativeartsetc.withrankinginformationonthedegreeofcompetitivenessattheinternationallevel.

Criticalproblems/challenges

Rankingofthethreemostcriticalchallengesfortheregione.g.watershortages,defensesecurity,thatmightbeofbroaderrelevancetoothermarkets.

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4. Conclusions Ourapproachtomeasuring‘innovation-drivenentrepreneurship’inanecosystemisgroundedinaclearframeworkforunderstandingthisasa‘system’inwhicharangeofinputsarecombined,onthe(moreorlessstrong)bedrockofinstitutionalfoundations.

Asthefoundationsforthewholesystem,theunderlying‘institutions’areimportant,eventhoughtheymightnotbeamenabletomajorchangeintheshortterm.Despitethis,itisimportanttobehonestandclear-eyedaboutthem,butthenturntohowtoproceedinthecircumstances,giventhechallenges–orperhapseventheopportunities–whichtheyprovide.Forbothanalyticalanddecision-makingpurposes,theinnovationcapacity(I-Cap)andentrepreneurshipcapacity(E-Cap)canbeusefullyseparatedintothe'twinengines'ofthesystem,eachwithaseparateseriesofinputstofuelthem.Eitherorbothoftheseenginescanbestrongerorweakerinanygivencountry,contributingtoanecosystem,andthisassessmentcanbecapturedinaseriesofsimpleoutputmetrics.Thesethenfeedinto'comparativeadvantage'attheregionallevel(includingclusters),whichisausefulintermediateprismthroughwhichtoconsidertheoutputsofbothentrepreneurshipandinnovationcapacities.Beyondthat,thehealthofinnovation-drivenentrepreneurshipinanecosystem–asasnapshotintime,orovertime-mustbecapturedthroughaseriesofhigher-levelimpactmeasuresthatareappropriatefortheparticularcircumstances.Asastartingpoint,wehaveprovideddecision-makerswithaframeworktounderstandtheinnovation-drivenentrepreneurshipintheiriEcosystemandsomesimplemeasures

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thatcapturetheinstitutionalfoundations,andbothinnovationandentrepreneurshipcapacities.Whilenotassatisfyingasasingularindex,wefindthisapproachtobemoreintellectuallyrobustandmoreusefulintermsofguidingsubsequentactionsofdecision-makers–betheywithingovernment,corporations,universitiesorotherstakeholders.Infuturework,wewillexpanduponourdiscussionof'impact'withavarietyofmeasuresfromhigh-levelnationalones(suchasGDP,SPIortheUN’sSDGs)throughmoreregionalones(suchasEQIforthe‘IDEs’)tomoretargetedevaluationsofregion-specific‘policyandprograminterventions’(PPIs).Inthemeantime,wepresentthisWorkingPapertocapturewhatwehavelearnedsofar,andtoseekfurtherfeedbackfromresearchers,practitionersanddecision-makers.

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Appendix A: Data Sources & Indices Takentogether,ourdataourdrawnfromarangeofsources.Belowwepresenteachofthesesourcesinturn.

Bloomberg Innovation Index (BII) Theindexranks50countriesthatcametopaccordingtothefollowingsixparameters:R&D,Manufacturing,NumberofHigh-TechCompanies,Post-Secondaryeducationenrolment,NumberofResearchpersonnelandNumberofPatents.TheBloombergInnovationIndexisavailablefrom2012,andtheindexmatchestheMITframeworkontheHumanCapita,Funding,InfrastructureandPerformance(seeTable 1)Table 1, Bloomberg Innovation Index’s structure and indicators, and tis links to the MIT Framework (in brackets)

R&D(FUNDING) R&Dexpenditureas%GDP

Manufacturing(INFRASTRUCTURE)

Manufacturingvalueaddedpercapita

HighTechCompanies(IDEPERFORMANCE)

#domestichightechpubliccompaniesasashareoftotalglobal#high-techcompanies

PostSecondaryEducation(HUMANCAPITAL)

%schoolgraduatesenrolledinpost-secondaryinstitutions,%workforcewithtertiarydegrees;annualscience/enggradsas%

ResearchPersonnel(HUMANCAPITAL)

Professionals(includingPhDStudents)engagedinR&Dper1millionpeople

Patents(I-CapPERFORMANCE)

Residentpatentfilingsper1Mpeople;utilitypatentsgrantedaspercentageofworldtotal.

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Global Innovation Index (GII) TheIndex,publishedbyCornell,theWorldIntellectualPropertyOrganization(WIPO)andINSEADamongothers,hassomeoftheclosestoverlapswiththeMITapproach.Itcovers128economiesandfocusesoninnovation-orientedmetrics.ThelargestoverlapwiththeMITFrameworkisontheiCapside,excludingtheCulture&Inventiveparts(seeTable 2) Table 2, Global Innovation Index structure and components and their mapping to the MIT Framework. PPL is human talent, $ is funding, INF is infrastructure, INS is institutions, IDE = Innovation-driven Enterprise performance, DMD is demand and PLC is policy.

HUMANCAPITAL&RESEARCH

Education PPL.

Expenditureoneducation,%GDP;Gov'texpenditure/pupil(%GDP/cap);Schoollifeexpectancy(years);PISAscalesinreading,math&science;Pupil-teacherratioinsecondaryeducation

Tertiaryeducation PPL. Tertiaryenrolment,%gross;Graduatesinscience

&engineering,%,Tertiaryinboundmobility,%

Research&development

PPL.$

Researchers,FTE/mnpop;ERD,$GDP;GlobalR&DCompanies,avg.expend.Top3,mln$US,QSuniversityranking,avr.scoretop3

KNOWLEDGE&TECHNOLOGYOUTPUTS

Knowledgecreation PPL.

Patentsbyorigin/nlPPP$GDP;PCTpatentapplications/bnPPP$;Utilitymodelsbyorigin/bnPPP$;Scientific&technicalarticles/bnPPP$GDP,Citabledocuments,Hindex

KnowledgeImpact

IDE.INF.

GrowthrateofPPP$';Newbusinesses/thpop15-64;Computersoftwarespending,%GDP,ISO9001qualitycertificates,/blnPPP$GDP,High-#medium-high-techmanufactures,%

KnowledgeDiffusion

PPL.FND.

Intellectualpropertyreceipts,%totaltrade,High-techexportslessre-exports,%totaltrade;ICTservicesexports,%totaltrade;FDInetoutflows,%GDP

CREATIVEOUTPUTS

IntangibleAssets

PPL.INF.

Trademarksbyorigin/bbPPP$GDP;Industrialdesignsbyorigin/blnPPP$GDP;ICTs&businessmodelcreation;ICTs&organizationalmodelcreation

Creativegoods&services IDE.

Culture&creativeservicesexports,%oftotaltrade,Nationalfeaturefilms/mnpop15-69,Globalent.&mediamarket/thpop15-69,Printing&publishingmanufactures,%;Creativegoodsexports,%totaltrade

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Onlinecreativity INF.

Generictop-leveldomains(TLDs)/thpop.15-69;Country-codeTLDs/thpop15-69;Wikipediaedits/mlnpop.15-69;VideouploadsonYouTube/pop15-69

BUSINESSSOPHISTI-CATION

Knowledgeworkers

IDE.$

Knowledge-intensiveemployment,%;firmsofferingformaltraining,%offirms;GERDperformedbybusinesses,%ofGDP;GERDfinancedbybusiness,%;femalesemployedwithadvanceddegrees,%total

Innovationlinkages

DMD.IDE.

University/Industryresearchcollaboration;Stateofclusterdevelopment;GERDfinancedbyabroad,%;JV-strategicalliancedeals/blnPPP$GDP;Patentfamilies2+offices/blnPPP$GDP

Knowledgeabsorption

IDEPPL.

Intellectualpropertypayments,%totaltrade;High-techimportslessre-imports,%totaltrade;ICTservicesimports,%totaltrade;FDInetinflows,%GDP;Researchtalent,%inbusinessenterprise

INSTITUTIONS

Politicalenvironment INS. Politicalstability&safety;Government

effectivenessRegulatoryenvironment INS. Regulatoryquality;Ruleoflaw;Costof

redundancydismissal,salaryweeksBusinessEnvironment INS. EaseofStartingabusiness;EaseofResolving

insolvency;EaseofPayingtaxes

INFRA-STRUCTURE

ICTs INF. ICTaccess;ICTuse;Gov't'sonlineservice;E-participation

GeneralInfrastructure INF. Electricityoutput;Logisticsperformance;Gross

Cap.Formation

EcologicalSustainability INS.

GDP/unitofenergyuse;Environmentalperformance;ISO14001environmentalcertificates/bnPPP$GDP

MARKETSOPHISTI-CATION

Credit $ Easeofgettingcredit;Domesticcredittoprivatesector,%GDP;Microfinancegrossloans,%GDP

Investment INS.$

Easeofprotectingminorityinvestors;Marketcapitalization,%GDP;Totalvalueofstockstraded,%GDP;VentureCapitaldeals/bnPPP$GDP

Trade,Competition&MarketScale

PLC. Appliedtariffrate,%;Intensityoflocalcompetition;Domesticmarketscale/bnPPP$

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Global Competitiveness Report (GCR, by WEF) Theglobalcompetitivenessreport(GCR)ispublishedbytheWorldEconomicForum(WEF)inDavos.MostofitsindicatorsarecomingfromtheExecutiveOpinionSurveys,buttheothersincludeUN(UNESCO)statistics,InternationalTelecommunicationsUnion,WorldTradeOrganizationandtheInternationalMonetaryFund.TheReportcovers138economics,withseparateAfricareporttocoverallAfricancountries.IthasastrongoverlapwiththeMITFramework,particularlyonthefoundations,infrastructureandfunding(seeTable 3).However,itdoesnothaveanycomparableoverlaponthecultureandincentives.Table 3, Global Competitiveness Report structure and mapping to the MIT Framework. PPL is human talent, $ is funding, INF is infrastructure, INS is institutions, IDE = Innovation-driven Enterprise performance, DMD is demand and PLC is policy.

1 Institutions INS.

Propertyrights,Intellectualpropertyprotection,Diversionofpublicfunds,Publictrustinpoliticians,Irregularpaymentsandbribes,Judicialindependence,Favoritismindecisionsofgovernmentofficials,Wastefulnessofgovernmentspending,Burdenofgovernmentregulation,EfficiencyoflegalframeworkinsettlingdisputeEfficiencyoflegalframeworkinchallengingregs,Businesscostsofterrorism,Businesscostsofcrimeandviolence,Organizedcrime,Reliabilityofpoliceservices,Ethicalbehavioroffirms,Strengthofauditingandreportingstandard,Efficacyofcorporateboards,Protectionofminorityshareholders’interestsStrengthofinvestorprotection

2 Infrastructure INF.

Qualityofoverallinfrastructure,Qualityofroads,Qualityofrailroadinfrastructure,Qualityofportinfrastructure,Qualityofairtransportinfrastructure,Availableairlineseatkm/week,millionsQualityofelectricitysupply,Fixedtelephonelines/100pop.Mobiletelephonesubscriptions/100pop.

3 Macroeconomicenvironment FND.

Qualityofelectricitysupply;Fixedtelephonelines/100pop;Mobiletelephonesubscriptions/100pop;Governmentbudgetbalance,%GDP;Grossnationalsavings,%GDP*Inflation,annual%change;Generalgovernmentdebt,%GDP;Countrycreditrating

4 Healthandprimaryeducation

PPL.

Malariacases/100,000pop.Businessimpactofmalaria,Tuberculosiscases/100,000pop.Businessimpactoftuberculosis,HIVprevalence,%adultpop.BusinessimpactofHIV/AIDS,Infantmortality,deaths/1,000livebirthsLifeexpectancy,yearsQualityofprimaryeducation,Primaryeducationenrollment,net%

5 Highereducation&training

PPL.

2°educationenrollment,gross%;3°educationenrollment,gross%Qualityoftheeducationsystem,Qualityofmathandscienceeducation,Qualityofmanagementschools,Internetaccessinschools,Availabilityofresearchandtrainingservices,Extentofstafftraining,Intensityoflocalcompetition

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6 Goodsmarketefficiency

FNDDMD..

Intensityoflocalcompetition,Extentofmarketdominance,Effectivenessofanti-monopolypolicy,Effectoftaxationonincentivestoinvest,Totaltaxrate,%profits,No.procedurestostartabusinessNo.daystostartabusinessAgriculturalpolicycosts,Prevalenceoftradebarriers,Tradetariffs,%dutyPrevalenceofforeignownership,BusinessimpactofrulesonFDI,Burdenofcustomsprocedures,ImportsasapercentageofGDPDegreeofcustomerorientation,Buyersophistication

7 Labormarketefficiency DMD.

Cooperationinlabor-employerrelations,Flexibilityofwagedetermination,Hiringandfiringpractices,Redundancycosts,weeksofsalaryEffectoftaxationonincentivestowork,Payandproductivity,Relianceonprofessionalmanagement,Countrycapacitytoretaintalent,Countrycapacitytoattracttalent,Womeninlaborforce,ratiotomen

8 Financialmarketdevelopment $

Financialservicesmeetingbusinessneeds,Affordabilityoffinancialservices,Financingthroughlocalequitymarket,Easeofaccesstoloans,Venturecapitalavailability,Soundnessofbanks,Regulationofsecuritiesexchanges,Legalrightsindex

9 Technologicalreadiness INF.

Availabilityoflatesttechnologies;Firm-leveltechnologyabsorption;FDIandtechnologytransfer,IndividualsusingInternet,%FixedbroadbandInternetsubscriptions/100pop.Int’lInternetbandwidth,kb/speruser;Mobilebroadbandsubscriptions/100pop.

10 Marketsize DMD. Domesticmarketsizeindex,Foreignmarketsizeindex,GDP(PPP$billions)ExportsasapercentageofGDP

11 Businesssophistication INF.

Localsupplierquantity,Localsupplierquality,Stateofclusterdevelopment,Natureofcompetitiveadvantage,Valuechainbreadth,Controlofinternationaldistribution,Productionprocesssophistication,Extentofmarketing,Willingnesstodelegateauthority

12 Innovation IDE.

Capacityforinnovation,Qualityofscientificresearchinstitutions,CompanyspendingonR&D,University-industrycollaborationinR&D,Gov’tprocurementofadvancedtechproducts,Availabilityofscientistsandengineers,PCTpatents,applications/millionpop.

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European Innovation Scoreboard (EIS) TheEuropeanInnovationScoreboard(EIS)wasoriginallyconductedusingthemethodologydevelopedwiththeOECD,calledtheOsloManualintheearly2000.RatherdeepindetailandwithmanyelementsmappingtotheMITFramework(mostlyi-Cap)(seeTable 4),itscoverageislimitedtotheEUstatesandneighboringcountries. Table 4, European Innovation Scoreboard structure. PPL is human talent, $ is funding, INF is infrastructure, INS is institutions, IDE = Innovation-driven Enterprise performance, DMD is demand and PLC is policy.

FRAMEWORKCONDITIONS

Humanresources PPL. Newdoctorategraduates,Populationcompletedtertiaryeducation,Lifelonglearning

Attractiveresearchsystems PPL.

Internationalscientificco-publications,Scientificpublicationsamongtop10%mostcited,Foreigndoctoratestudents

Innovation-friendlyenvironment

INF.Broadbandpenetration,Opportunity-drivenentrepreneurship

INVESTMENTS

Financeandsupport $.

R&Dexpenditureinthepublicsector,Venturecapitalinvestments

Firminvestments $,PPL.R&Dexpenditureinthebusinesssector,Non-R&Dinnovationexpenditure,EnterprisesprovidingICTtraining

INNOVATIONACTIVITIES

Innovators IDE.SMEswithproductorprocessinnovations,SMEswithmarketingororganisationalinnovations,SMEsinnovatingin-house

Linkages IDE.InnovativeSMEscollaboratingwithothers,Public-privateco-publications,Privateco-fundingofpublicR&Dexpenditures

IntellectualassetsPPL. PCTpatentapplications,Trademarkapplications,Designapplications

IMPACTS

Employmentimpacts

IDE. Employmentinknowledge-intensiveactivities,Employmentfast-growingfirmsinnovativesectors

EconomiceffectsDMD.IDE.

Medium&hightechproductexports,Knowledge-intensiveservicesexports,Salesofnew-to-marketandnew-to-firminnovations

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Global Entrepreneurship Index (GEI, from GEDI) TheGlobalEntrepreneurshipIndex(GEI)looksatfactorsimpactingentrepreneurship,butstudyingbothindividuallevelandinstitutionallevelparameters.Table 5belowgivesanoverviewofitsstructureandhowitoverlapswiththeMITFramework.Table 5 Global Entrepreneurship Index structure and linkages to the MIT Framework.. PPL is human talent, $ is funding, INF is infrastructure, INS is institutions, IDE = Innovation-driven Enterprise performance, DMD is demand and PLC is policy.

ATTITUDES

OpportunityPerception PPL.

Opportunityrecognition

Freedom(Economicfreedom*Propertyrights)

Start-upSkillsPPL.SkillPerception

Education(Tertiaryeducation*qualityofeducation)

RiskAcceptance PPL.

RiskPerception

CountryRisk

Networking PPL.INF.

KnowEntrepreneurs

Agglomeration(Urbanization*infrastructure)

CulturalSupport

PPL.INS.

Careerstatus

Corruption

ABILITIES

OpportunityStart-up

PPL.INS.

OpportunitymotivationGovernance(Taxation*Goodgovernance)

TechnologyAbsorption

INF.PPL.

TechnologyLevelTechnologyabsorption

HumanCapital PPL.

EducationalLevelLaborMarket(StaffTraining*Labourfreedom)

Competition IDE.DMDCompetitorsCompetitiveness(Marketdominance*Regulation)

ASPIRATION

ProductInnovation IDE.

NewProductTechTransfer

ProcessInnovation

IDE.$,INS.

NewTechnologyScience(GERD*(AveragequalityofscientificinstitutionsandAvailabilityofScientistsandEngineers)

HighGrowth IDE.$

GazelleFinanceandStrategy(VentureCapital*BusinessSophistication)

Internationalization

IDE.PLC.

ExportEconomicComplexity

RiskCapital $PLC.

InformalInvestmentDepthofCapitalMarket

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Global Entrepreneurship Monitor (GEM) TheGEMisaconsortiumofcorporations,universities,topresearchinstitutionsandgovernmentlaboratoriesthatannuallypublishesastudyonthestateofentrepreneurshipinover70countries.Itconductstheresearchthroughaseriesofinterviewsandsurveys,anannualsurveyandinterviews,ofthepopulation(theAdultSurveyPopulation)andtheexpertsinthecountry(theNationalExpertSurvey).ThisGEMservesasaprimarysourceformanyotherentrepreneurialindices.ItisoneofthefewtoprovidedataontheCulture&IncentivespartoftheMITFramework(seeTable 6below).Table 6, Global Entrepreneurship Monitor structure and linkages to the MIT Framework.. PPL is human talent, $ is funding, INF is infrastructure, INS is institutions, IDE = Innovation-driven Enterprise performance, DMD is demand and PLC is policy.

Self-PerceptionsAboutEntrepreneurship(PEOPLE)

Perceivedopportunities,perceivedcapabilities,undeterredbyfearoffailure

Activity(IDEPERFORMANCE)

TotalEarly-StageEntrepreneurshipActivity,Establishedbusinessownershiprate,EntrepreneurialEmployeeActivity

MotivationalIndex(CULTURE&INCENTIVES)

Improvement-DrivenOpportunity/NecessityMotive

GenderEquality(PEOPLE,CULTURE&INCENTIVES)

Female/MaleRatio,Female/MaleOpportunityRatio

EntrepreneurshipImpact(IDEPERFORMANCE)

Jobexpectations,Innovation,Industry(%inBusinessServicesSector)

SocietalValueaboutEntrepreneurship(CULTURE&INCENTIVES)

Highstatustoentrepreneurs,entrepreneurshipagoodcareerchoice