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The Role of Regional ClustersUnlocking RURal competitiveness

January 2007This project was supported by a grant rom the U.S. Economic DevelopmentAdministration with additional support or assistance rom the State o

Indiana through the Governors Ofce, the Lt. Governors Ofce, and theIndiana Department o Workorce Development.

www.ibrc.indiana.edu/innovatio

www.purdue.edu/dp/pcrd/innov


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Rurality plays out differently for counties near a metropolitan area vs.places that are more far removed. One result of this project is the Index ofRelative Rurality, which incorporates distance to the nearest metro area,along with the creation of a seven-level continuum that differentiatesamong (a) types of metro areas and (b) areas at the rural-metro interface.

PurPoseofthe study RuralityThis work sets the stage or the

development and implementation o

regional initiatives to stimulate new

investment and job creation in rural

America.

The study resulted in a database,

analytical tools, and processes to help

rural regions assess their economic

competitiveness and create strategies

or growth and development.

strategiesfor successRural areas ace new realities and

opportunities in todays global economy.

A successul strategy recognizes the

importance o a regional ramework

and linkages between rural and urban

America. Key to navigating this new

environment is an understanding o

industry clusters.

B

C

A

Metropolitan Sphere

E

F

D

Rural-Metro Interface

G

Rural Sphere

rural-MetroPolitan levels


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The study team developed a set of industry clusters based on theNorth American Industry Classication System that can be appliedto all counties in the United States. The manufacturing cluster wasfurther disaggregated into six more-specialized subclusters for acloser look.

On average, U.S. counties specialize in slightly more than two

industry clusters (LQ > 1.2, meaning that the clusters share ofemployment in the county is at least 20 percent higher than theclusters share of employment nationally).

About 12 percent of U.S. counties do not specialize in any ofthe clusters. Many of these counties are too small to have aspecialization. Twenty-nine percent of counties specialize in only oncluster, 24 percent specialize in two clusters, 15 percent specialize inthree clusters, and 20 percent specialize in four or more clusters.

Certain clusters often co-locate, contrary to the conventional wisdomof a single dominant cluster in a given region. Categorizing a regionaround a single cluster or economic activity is too simplistic; it is

better to think in terms of how clusters interrelate.

ClustersWhatare clusters?Clusters are groups o industries that

share common or complementary

markets, suppliers, or workorce skills.

Cluster analysis must be used judiciously because it relies upon historical data,

and the past is not a perect predictor or the uture. For example, a region

currently specialized in a particular cluster may not have a bright uture i the

national and global outlook or that cluster is one o decline.

a cautionarynote

www.ibrc.indiana.edu/innovatwww.purdue.edu/dp/pcrd/inno

The small maps shown throughout this brochure indicate counties with location quotients greater than1.2 in a specic industry cluster. This means that the clusters share of employment in the county isat least 20 percent higher than the clusters share of employment nationally (indicating a specialized

cluster), and this is the rst step in determining where a regions comparative advantage lies.

location Quotients (lQ)

0 1 2 3 4 5 6 7 8 9 10

Education & Knowledge Creation

Business & Financial Services

Energy

Manufacturing

Defense & Security

Information Technology& Telecommunications

Advanced Materials

Arts, Entertainment,Recreation & Visitor Industries

Biomedical/Biotechnical

Transportation & Logistics

Agribusiness, FoodProcessing & Technology

Forest & Wood Products

Printing & Publishing

Chemicals & Chemical-Based Products

Apparel & Textiles

Glass & Ceramics

Mining (ExcludingFossil Fuels)

Percentof totaleMPloyMent

0

5

10

15

20

25

30

No clusters 1 cluster 2 clusters 3 clusters 4 clusters 5 or more

Number of Specialized Clusters

PercentofU.S.

Counties


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1. pRintableRepoRt

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2. completedataUsed

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U.s. coUnties

3. hypeRlinkstothe

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On the Disc

Which clusters are strong in ruralregions?

How can rural areas identify strategiesfor growth?

How can rural areas leverage theeconomies of nearby metro areas?

What does it take to mobilize leadersfor local action?

Use the enclosed CD to learn the answers to these questions or visit the website to get the most recent data relevant to the study:

www.ibrc.indiana.edu/innovation/data.html


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Percent change in LQ

SizeofLQi

n2004

TRANSFORMING EMERGING

STARS

-20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

0.0

1.0

2.0

3.0

4.0MATURE

Biomed/Biotech:1.2; 13,766

Education & KnowledgeCreation: 3.2; 12,578

Advanced Materials:1.7; 8,070

Manufacturing:1.0; 6,072

Energy: 0.9; 4,617

Business &Financial Services:

0.5; 4,549

Chemicals:1.7; 3,645

Arts & Ent:0.6; 2,785

Agribusiness:0.9; 2,414

Forest & WoodProducts: 1.2; 2,061

Transportation& Logistics:

0.6; 1,895

Printing &Publishing:

0.9; 1,870

Apparel &Textiles:0.5; 598

Mining: 2.9; 465

Glass &Ceramics:0.6; 188

Info Tech & Telecomm: 0.4; 1,720

Defense & Security:1.0; 5,762

The Indiana Department o Workorce

Developments EGR 8 was chosen

to demonstrate how this process or

analysis and planning can be used by

other regions across the United States.

This region is similar to many regions

throughout the nation, with several rural

counties linked to a nearby metropolitan

area.

indianas econoMicgroWth region 8 (egr 8)

A 25-member Regional Advisory Committee (RAC) was essential forguiding and building support for an EGR 8 regional strategy. Withsupport from the RAC, considerable data were gathered through surveys,focus groups, and interviews with key stakeholders. This ground-levelinformation, when combined with the results from the cluster analysis,helped the RAC focus on cluster activation and related strategies for thefollowing:

Energy; Agribusiness, Food Processing and Technology; Forest andWood ProductsBiomedical/Biotechnology; Advanced MaterialsArts, Entertainment, Recreation, and Visitor Industries

How Economic Developers are Using the Analysis

What the Cluster Analysis for EGR 8 FoundWhile EGR 8 has a diverse and reasonably robust cluster array, itsindividual counties generally have limited cluster strengths on their own.It is tempting to pursue a strategy to strengthen each countys individualclusters; however, success is more likely by collaborating throughout theregion to capitalize on complementary clusters.

If most agricultural producers are dependent upon off-farm income, then we must pay specialttention to our support of rural economies and [move] beyond agriculture. To quote from a reportecently released by the American Farm Bureau Federation: Farmers are more dependent on ruralommunities than rural communities are dependent upon farmers.

Mike Johanns, U.S. Secretary of Agriculture, 2006

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Businesses with More than $1 Millionin Sales in EGR 8 by County

clustersin egr 8

www.ibrc.indiana.edu/innovatiowww.purdue.edu/dp/pcrd/innov


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Purdue Center or Regional DevelopmentIndiana Business Research Center at the Kelley School o Business, Indiana University

Strategic Development Group, Inc.

selected highlightsFRomthe RepoRt

RepoRtpRepaRedby

This brochure was designed by the Indiana Business Research Center

The strongest ruralorientations are inthe agribusiness,food processing andtechnology cluster, themining cluster, and theforest and wood productscluster. A relativelylarge number ofcounties are specializedin agribusiness,food processing and

technology and in forestand wood products.

The advanced materiacluster is highlyconcentrated in theupper Midwest: Overhalf of all the highlyspecialized counties arfound in Minnesota,Wisconsin, Illinois,Indiana, Ohio, andMichigan. Nationwidethe advanced materialcluster accounts for

about 4 percent ofemployment. Howevein most counties,the cluster is weaklyrepresented.

For rural countieswhether within, adjacentto, or remotely locatedfrom a metropolitanareathe percentageof college graduateshas a strong positivecorrelation with incomegrowth, reinforcing theneed for rural countiesto invest in their citizenseducation.

The energy cluster makesup 5.7 percent of nationalemployment. Almost 8percent of U.S. countiesspecialize in energy-related industries.Their spatial locationis quite distinct, withconcentrations in Texasand Oklahoma, alongthe Gulf Coast, the mid-Atlantic coast, and inWest Virginia. Look for

change in the geographicdistribution of thiscluster due to expansionin the biofuels industry.

The manufacturingcluster accounts for justover 5 percent of totalemployment nationally.This cluster was brokeninto six subclusters,the largest beingtransportation equipmentmanufacturing. Over300 counties specializein this subcluster,forming a geographicaxis of concentration

from Michigan, south toIndiana, Kentucky, andTennessee.

The business andnancial services clusteraccounts for 8.5 percentof employment at thenational level. However,fewer than 100 of thenations counties arespecialized in this clusterand these are primarilylocated along the EastCoast, around SanFrancisco, and aroundthe major metropolitan

areas of the U.S. interior,including Chicago,Indianapolis, andDenver.

Urban counties havehigh concentrationsof the business andnancial servicescluster, the biomed/biotech cluster, theinformation technologyand telecommunicationscluster, and the printingand publishing cluster.

The concepts andtechniques of clusteranalysis appear to be auseful tool for regionalleadership. This type ofanalysis also helps rurastakeholders becomemore comfortable withregional frameworksand rural-urbaninterdependenciesrealities that may

otherwise be difcult toembrace.

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