Journal of Economic Geography 11 (2011) pp. 529–557 doi:10.1093/jeg/lbq007 Advance Access Published on 17 May 2010 The rural growth trifecta: outdoor amenities, creative class and entrepreneurial context§ David A. McGranahan*y, Timothy R. Wojan* and Dayton M. Lambertz *Economic Research Service, U.S. Department of Agriculture, Washington, DC, USA zDepartment of Agricultural and Resource Economics, University of Tennessee, Knoxville, USA yCorresponding author: David A. McGranahan, Economic Research Service/USDA, 1800 M Street, NW, Washington, DC, USA, 20036-5831. email 5dmcg@ers.usda.gov4 Abstract Recent work challenges the notion that attracting creative workers to a place is sufficient for generating local economic growth. In this article, we examine the problem of sustaining robust growth in the periphery of the USA, demonstrating the contingent nature of talent as an engine for economic growth. We test the hypothesis that rural growth in the knowledge economy is dependent on the ability to utilize new knowledge, perhaps generated elsewhere, in addressing local economic challenges. Tests confirm that the interaction of entrepreneurial context with the share of the workforce employed in the creative class is strongly associated with growth in the number of new establishments and employment, particularly in those rural counties endowed with attractive outdoor amenities. Keywords: Entrepreneurship, creative class, amenities, spatial econometrics JEL classifications: R11, O18, L26, C31 Date submitted: 01 July 2008 Date accepted: 16 March 2010 1. Introduction Rural development in the industrialized world is at crossroads. Primary industries continue to shed employment. Traditional strategies of promoting exogenous growth through the recruitment of employers are now much less effective. Routine and low- skill functions are increasingly outsourced to low-wage countries. At the same time, more knowledge-intensive functions tend to agglomerate in cities. Despite these disadvantages, many rural areas have continued to grow. During the 1990s in the USA, over one in every five rural (nonmetropolitan) counties gained jobs at a faster rate than the urban (metropolitan) county average. The ineffectiveness of traditional rural development strategies within this new environment has turned attention to entrepreneurship and endogenous development as more viable approaches (Rowe et al., 1999). Yet, notwithstanding the strong rhetorical appeal of home grown development, the empirical analysis has provided little theory and few clues as to where and when these processes play a role in contemporary rural economic growth. § The views expressed here are those of the authors, and may not be attributed to the Economic Research Service, the U.S. Department of Agriculture or the University of Tennessee. Published by Oxford University Press 2010. This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/ licenses/by-nc/2.5), which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited. at Universitaetsbibliothek & Technische Informationsbibliothek on June 28, 2012 http://joeg.oxfordjournals.org/ Downloaded from

This article applies the urban economics construct of the ‘creative class’ to explain how some rural places may be economically dynamic even in a national context where growth depends on the novel combination of knowledge and ideas. The key insight from the urban creative class literature is that workers in occupations specializing in creative tasks demonstrate strong preferences for various amenities and these preferences affect the location of talent (Florida, 2002, 2005). Opportunities for outdoor recreation is one set of amenities that is consistently mentioned in these works but which has not commanded the attention of Florida, other creative class researchers or the popular press the way diversity, tolerance for alternative lifestyles and the distinctiveness of central city amenities has. Our rural variant of the creative class construct re-emphasizes outdoor amenities as an attractor of talent. We posit that some creative workers may choose to forego higher urban earnings in exchange for the quality of life found in places endowed with natural amenities and that where this occurs, it may lead to business formation and economic growth, facilitated in part by the attraction of more creative class members. We are mindful that recent urban and regional research on the creative class has raised questions about its relevance to economic growth. Empirical results have been decidedly mixed (Donegan, et al. 2008 Boschma and Fritsch, 2009 Hoyman and Faricy 2009). Part of the explanation may be that, as Storper and Scott (2009) and Asheim and Hansen (2009) argue, the location of the creative class is largely shaped by demand, so that industrial structure and change shape the location of both creative class and growth. The demand side receives support from Hansen and Niedomysl (2009) who find that most Swedish creative class people move for jobs rather than local quality of life. For us, this assertion that jobs may come before people does not deny the creative class dynamic but suggests that it may be contingent on local context. This would be consistent with Partridge and Rickman’s (2003) analysis of US state growth patterns, which showed that the relative importance of labor supply (versus demand) varies considerably by region and time period. In this article, we explore two geographic factors that may shape the relationship of creative class to local economic growth. First, the creative class dynamic is likely most relevant in high-amenity contexts. The model assumes a footloose creative class drawn to high amenity areas, thus providing these areas the advantage of an influx of knowledge and creativity. As Boschma and Fritsch (2009) note, the presence and attraction of the creative class in Florida’s (2002) model is part of a mechanism through which economies grow where people, not jobs, come first. Low-amenity areas may lack this influx, whatever their level of creative class. The second contingency is the presence of an entrepreneurial context. The creative class model assumes that the creative class is entrepreneurial by nature and drawn to entrepreneurial contexts envisioned by Jacobs (1965). But if we recognize that the creative class presence may be high in other milieus, such as the one supported by a large government research facility, the presumption of an entrepreneurial creative class seems problematic. Creativity as an economic asset may in some cases be largely contained within a worker’s organization with little spillover to the local economy. In sum, this article explores for rural economies whether the relationship between creative class and local growth depends on two local conditions presumed present in Florida’s work (2002, 2005): a high level of amenities and an entrepreneurial context. The rest of the article is organized into four main sections. In the following background section we discuss the creative class and its relationships to rural areas, 530 . McGranahan et al. at Universitaetsbibliothek & Technische Informationsbibliothek on June 28, 2012 http://joeg.oxfordjournals.org/ Downloaded from

entrepreneurship and outdoor amenities. Section 3 includes the operationalization of these variables and an empirical analysis of their interrelationships and their relationships to rural county gains in numbers of establishments and jobs during the 1990s. Of particular interest is the extent to which creative class links to growth are conditioned by local entrepreneurial and outdoor-amenity contexts. In Section 4, we extend the growth analysis by incorporating a variety of other growth-related county characteristics such as industry, education, income, commuting and prior growth, and by considering spillover effects of economic growth between rural and urban regions. This provides not only an assessment of the robustness of our results but also a fuller understanding of alternative paths of rural growth. The concluding section provides a summary and discussion of the results. 2. Background 2.1 Creative class and rural areas Endogenous growth models, originating with Romer (1986, 1990) and Lucas (1988), posit that growth comes from knowledge that, because of its quasi-public nature, spills over into local economies as it is assimilated. For Florida (2002), knowledge and creativity are concentrated in the ‘creative class’, comprised of people in occupations that produce new knowledge and ideas and understand their use. For our purposes, Florida’s central insight is that this class is not fixed in place but geographically fluid, drawn to places that offer interesting lives as well as interesting work. New economic knowledge may thus diffuse out of the localities where it was generated, and localities can gain knowledge and creativity by attracting this class. The implication is that labor mobility may be an important source of widespread knowledge flows, but one that has been largely disregarded by the empirical focus on localized knowledge spillovers (Breschi and Lissoni, 2001 Faggian and McCann, 2009). Much of the research identifying occupations as principal vectors of knowledge transmission has examined this phenomenon within industrial districts (Saxenian, 1990, 1994 Almeida and Kogut, 1999), in cities (Glaeser et al.,1992) or aspatially (Pack and Paxson, 1999 Zellner, 2003). Recent recognition of the importance of non-local knowledge flows, either in the form of global networking (Fontes, 2005 Gertler and Levitte, 2005) or through labor mobility (Dahl, 2004 Solimano, 2008 Boschma et al., 2009), is consistent with the idea that localities need not be producers of knowledge to have access to it. In their study of interregional migration of college graduates in the UK, Faggian and McCann (2009) provide evidence that high-performing regions are generally those that ‘attract learned people’ whether or not they qualify as ‘learning regions’. The applicability of knowledge-driven growth processes in rural areas is controversial given their characterization as places toward the end of the regional product cycle (Barkley et al., 1988 Glasmeier 1991). Rural areas are generally not locations of new knowledge production. Few patents go to rural areas (Barkley et al., 2006) research universities in the USA are largely urban, as are industrial R&D activities. However, during the past 20 years, there has been a considerable amount of new knowledge generated with respect to production and information technologies and marketing and management practices, much of it related to microchips and this development has been relevant to rural as well as urban areas (Gale, 1998 Wojan and McGranahan, 2007). The rural growth trifecta . 531 at Universitaetsbibliothek & Technische Informationsbibliothek on June 28, 2012 http://joeg.oxfordjournals.org/ Downloaded from

Facilitated in part by these new technologies, markets have changed, becoming more globalized and differentiated. In this context, knowledge of new technologies and practices and creativity in their use would seem critical to rural success—a point explicitly recognized by EU-member reports examining the rural contribution to the 2010 Lisbon goal of becoming ‘the most competitive and dynamic knowledge-based economy in the world’ (Hepworth et al., 2004 Hepworth and Pickavance, 2004 Fornefeld et al., 2008). Rural areas in the USA lose much of their prospective talent as young adults leave for urban colleges and city lights (Plane et al., 2005). Many do not return: most rural counties lost in their share of college graduates in 1970–2000 (Artz, 2003). However, there is a countervailing migration flow of young families, mid-life career changers and retirees out of major urban centers. In the 1990s, the number of people who moved from metropolitan to nonmetropolitan areas exceeded the flow in the other direction. Capturing this flow, particularly its productive talent, may be the keystone for rural economic growth in the knowledge economy. But, is there a rural flow of creative class to capture? Florida (2002, 2005) developed his theory with cities in mind and the ensuing research has focused almost entirely on urban agglomerations or national sets of regions varying in their rural–urban mix, which would suggest that the creative class is an urban phenomenon. However, McGranahan and Wojan (2007), focusing explicitly on the nonmetropolitan USA, found that 20% of 2003 nonmetropolitan employment was in creative class occupations, certainly lower than the 31% in metropolitan USA, but not insubstantial. The rural creative class, comprised mainly of managers, high-end sales positions, scientists, engineers, college professors, artists and designers, was similar in occupa- tional structure to the urban creative class, if somewhat less schooled. McGranahan and Wojan (2007) found many rural counties high in creative class occupations. Some were associated with universities (e.g. Tompkins County, NY, with Cornell University). Others, however, had rich endowments of outdoor amenities, with mountains, lakes and other attractive landscape features (e.g. Pitkin County, CO, Aspen’s location). This finding was consistent with earlier research revealing a quality-of-life orientation to the location of producer services in rural areas (Goe, 2002), including those serving outside markets (Beyers and Lindahl, 1996). Finally, while little has been done on the outcomes of rural creative class presence, McGranahan and Wojan (2007) found an association between creative class and rural job growth. 2.2 Creative class and entrepreneurship Endogenous growth models have stimulated theoretical interest in local entrepreneur- ship, seen as a means through which knowledge once created becomes assimilated in the local economy (Audretsch and Feldman, 2004 Acs et al., 2005 Audretsch and Keilbach, 2005, 2006). Acs et al. (2005) found that OECD countries with relatively high R&D expenditures grew more rapidly in 1981–2000 compared with others only to the extent that they were also characterized by high rates of entrepreneurship. Zucker and Darby (2007) present more concrete evidence of the role of entrepreneurship. Focusing on highly productive ‘star’ scientists, they find that new knowledge is most likely to generate growth where the scientists involved in its creation are active in entrepreneurial organizations. More generally, Mueller (2006) finds university–industry relations related to regional economic performance. We feel that entrepreneurship may also be 532 . McGranahan et al. at Universitaetsbibliothek & Technische Informationsbibliothek on June 28, 2012 http://joeg.oxfordjournals.org/ Downloaded from

the mechanism through which the knowledge and talent of the creative class is assimilated into the local economy. For Florida (2002), the incorporation of creative class knowledge and talent into the local economy is not problematic: the creative class is entrepreneurial by nature and creative class settings are characterized by diversity, interaction and entrepreneur- ship in the manner of Jane Jacobs (1965). However, this general characterization of creative class and creative class settings seems questionable at both the individual and area level. Florida’s creative class occupations include many who seem unlikely to be or become local entrepreneurs (e.g. teachers, librarians, government agency managers) and others who may or may not be entrepreneurial in the sense of starting new businesses (engineers, sales managers, physical scientists). Places with even very high creative class concentrations need not be entrepreneurial, as Saxenian’s (1994) comparison of corporate Route 128 (near Boston) with entrepreneurial Silicon Valley illustrates. Recent research on entrepreneurship suggests that its strength in the creative class is likely related to context, particularly to the size of local businesses. Scientists and engineers in small firms have much higher rates of transition to self-employment than those in large firms (Elfenbein et al., 2009), a ‘small firm effect’ also found among business school graduates (Dobrev and Barnett, 2005) and the general work force (e.g. Gompers et al., 2005). These results are consistent with more general studies of local entrepreneurship that have found small firm contexts associated with greater rates of transition to self-employment (Giannetti and Simonov, 2004) and entrepreneurial proclivity (Mueller, 2006). Experience in a small firm environment may induce entrepreneurship, but Elfenbein et al. (2009) found that scientists and engineers initially expressing an interest in entrepreneurship were more likely to choose small firms as initial work places, so self- selection is involved. This is consistent with Parker’s (2009) research on transitions to self-employment in the workforce as a whole. This suggests that places with highly entrepreneurial contexts are apt to draw the more entrepreneurial creative class. Moreover, entrepreneurship seems likely more characteristic of the creative class drawn to high-amenity areas, where people need to create jobs, than of creative class in low- amenity contexts, where the creative class presence is more the outcome of industrial structure—where jobs attract people. Florida’s (2002) characterization of the creative class as entrepreneurial may be apt for the Jacobs’ (1965) creative class environments envisioned in his study, without being universally or even generally true of the creative class as a whole. Our study treats entrepreneurial context (small firm size or self-employment rate) as a local attribute distinct from the creative class. We expect that creative class and entrepreneurial context have a synergistic effect on local growth. Creative class talent and innovation is more engaged in the local economy in an entrepreneurial context and entrepreneurial context is more apt to lead to growth with the advantage of creative class talent and innovation. Thus, entrepreneurial settings low in creative class may generate little growth. Studies in the USA have generally found entrepreneurship to have a positive effect on growth, in contrast to the more nuanced, contingent findings in European research (Acs and Storey, 2004). Work in the UK related to a national program to promote local entrepreneurship suggests that in stagnant regions, new establishments may essentially reproduce the existing economy with little net effect on the local economy (Lloyd and Mason, 1984 Van Stel and Storey, 2004). Lloyd and Mason (1984) did find a growing region with high-end migrants-generated new types of The rural growth trifecta . 533 at Universitaetsbibliothek & Technische Informationsbibliothek on June 28, 2012 http://joeg.oxfordjournals.org/ Downloaded from