Minoli Ratnatunga
Director, Regional Economics Research, Center for Regional Economics
California and Human Capital and Indexes & Rankings and Job Creation and Regional Economics
Minoli Ratnatunga is director of regional economics research at the Milken Institute's Center for Regional Economics, where she focuses on regional economic development and regional competitiveness.
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Beyond Silicon Valley: California’s Innovation-Based Economy

By: Minoli Ratnatunga
December 01, 2015

Since companies operating in multiple locations do not typically disclose where research is conducted,  you can’t simply look at their publicly filed reports to find out. Federal sources take care to maintain this confidentiality by aggregating the data they collect; even the National Science Foundation (NSF) only reports R&D activity by industry at the state level. So, to pinpoint California’s centers of innovation, we drew on business databases as well as NSF data to link R&D activity, measured in dollars spent, to specific locations. Our results are summarized in the map below.

Figure 1. California R&D Spending by County
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We discovered that investment in R&D takes place throughout the state, and while it is concentrated in major urban coastal areas, there is significant activity in inland regions. Even in those counties shown in the lightest shade of blue, millions of research dollars are spent annually, and their economic ripple effects are substantial. In the report “California’s Innovation-Based Economy: Policies to Enhance and Maintain It,” released today, Ross DeVol, Kristen Harris, and I explore the impact of innovation on California’s economic growth and discuss policy changes that can help the state maintain its leadership position. We also share more detail about where R&D activity takes place. For example, we parse the data to identify the regions where research for key industries is concentrated.

While total R&D spending provides a sense of the scale of research activity in each county, focusing on the urban areas allows us to deepen our understanding of the importance of R&D to certain economies. In the map below, larger circles indicate metro areas with higher private-sector spending and darker colors indicate higher levels of R&D intensity — a measure which compares R&D spending to gross regional product. Typically, the economic significance of research is higher in metropolitan statistical areas (MSAs) where spending is higher, but this isn’t always the case. For example, the Los Angeles MSA, with $21 billion in R&D spending, has a much lower R&D intensity than the smaller Oxnard-Thousand Oaks-Ventura MSA. Spending in the latter region is about a tenth of the amount spent in Los Angeles. Yet, because the economy is smaller, research industries account for a much larger share of the Oxnard-Thousand Oaks-Ventura economy, which is anchored by large employers such as Amgen and Baxter. Unsurprisingly, in the three large MSAs in the Bay Area—San Jose-Sunnyvale-Santa Clara, San Francisco-Oakland-Hayward, and Santa Cruz-Watsonville—we see both high R&D spending and high R&D intensity.

Figure 2. California R&D spending and intensity by metropolitan area
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Clearly, regions across California have a stake in ensuring that the innovation-economy remains strong. Today, we enjoy the prosperity stimulated by investment in R&D, but we should not be complacent; other states and countries have updated their policies to attract more research and development to their regions, and California should consider doing the same if it wants to stay competitive.

This post uses material from the Milken Institute report “California’s Innovation-Based Economy: Policies to Enhance and Maintain It,” by Ross DeVol, Kristen Harris, and Minoli Ratnatunga.