Which states are in the best position to take advantage of the opportunities for growth in the new economy?

According to a new ranking from the Milken Institute, they are Massachusetts, California, Connecticut, Colorado and Washington.

These are the five top-ranking states on the Institute’s Knowledge-based Economy Index (formerly the New Economy Index) which was released today. The Index ranks each state based upon 12 criteria critical to future high-tech growth. The data is then merged to determine where each state places on the Index.

The 12 criteria include research and development dollars, the population’s percentage of advanced degrees, number of patents issued, venture capital investment, business starts and IPO proceeds – all indicators of future high-tech growth.

Ross DeVol, Director of Regional and Demographic Studies for the Institute and creator of the Index, said the states that rank highest are those that are able to turn their research capabilities into commercial products.

“Our index measures a state’s likelihood of success in the new economy,” said DeVol, who studies technology’s impact on the U.S. and regional economies. “It measures the new economy’s critical attributes, which are based on innovation, knowledge, and the ability to convert ideas into viable products and services.”

The Institute’s research shows that technology and knowledge-driven innovation are critical to wealth creation in the new economy. Countries, states and metropolitan areas that are able to create clusters of high-tech industries will have greater economic growth than other areas.

Unlike the Institute’s 1999 study, America’s High-Tech Economy, which looked at how well metropolitan areas had done creating a high-tech economy, this new index ranks states based on how well they may do in the new economy.

According to DeVol, Massachusetts is number one on the Knowledge-based Economy Index because of its vast research capabilities, its highly educated population, and its many venture capital investments. California does well on exports, patents issued, venture capital investment, business starts and IPO proceeds.

Meanwhile, those at the bottom of the Index – Arkansas, West Virginia, South Dakota, Mississippi and Kentucky – will have a difficult time competing in the New Economy unless they can turn around their performance in the 12 categories, DeVol said.

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Knowledge-based Economy Index