Bridget Abraham

Jason Henderson

English

Research Papers in Economics

May 2005
Knowledge has become the new premium fuel for economic
growth in the 21st century. Knowledge fuels new ideas and inno-
vations to boost productivity—and creates new products, new
firms, new jobs, and new wealth. Some analysts estimate that
knowledge-based activity accounts for half of the gross domestic
product in western industrialized countries. In the United States,
knowledge-based industries are pacing economic growth. 
In rural America, as elsewhere, a variety of factors make
knowledge-based growth possible: high-skill labor, colleges and
universities, vibrant business networks, and infrastructure. Some
rural communities are already leveraging these assets to transform
their economy. 
CENTER FOR THE STUDY OF RURAL AMERICA
Federal Reserve Bank of Kansas City
Rural America’s 
Emerging Knowledge
Economy
Commentary on the rural economy
The Main Street 
Economist
Jason Henderson Bridget Abraham
Senior Economist  Bank Examiner
Center for the Study of Rural America Federal Reserve Bank 
of Kansas City
This article is based on the article, “Can Rural America Support a Knowledge Economy?” The article
appeared in the third quarter 2004 issue of the Federal Reserve Bank of Kansas City’s Economic Review. Many other rural places, however, have
yet to tap this rich economic potential. This
article analyzes rural America’s knowledge
economy and describes how some rural
communities are leveraging these factors to
build their own knowledge economy. 
What is the Knowledge Economy?
Knowledge is a new economic fuel
driving the U.S. economy. Traditionally,
economic growth was based on the
physical resources and the products they
yielded. Today, knowledge powers the U.S.
economy by generating new ideas and
innovations that boost productivity and
create new products.
Knowledge-based activities emerge
from an intangible resource that enables
workers to use existing facts and under-
standings to generate new ideas. These
ideas produce innovations that lead to
increased productivity, new products and
services, and economic growth. In short,
knowledge-based growth is derived from
people’s knowledge or ability to combine
education, experience, and ingenuity to
power growth.
Knowledge is often equated with
information because both assets are intan-
gible. Information, however, can be written
down or outlined in a patent or process,
making it easy to reproduce. Pieces of
writing, artwork, music, movies, and
datasets are information because they can
be reproduced. By contrast, the knowledge
used to produce information is harder to
codify or summarize on a piece of paper. 
Knowledge is also different from infor-
mation and other resources because it pro-
duces spillovers. Spillovers are benefits to
people beyond those who possess the
knowledge. Like other resources, knowl-
edge gives a direct boost to the economic
growth of people, firms, and communities
that have higher stocks of knowledge. But
knowledge also provides indirect benefits
by boosting the knowledge levels of other
people, firms, and communities. 
The U.S. Knowledge Economy
The intangible nature of knowledge
–the quality that makes it unique–also
makes it difficult to measure. How does
one measure the ability to combine edu-
cation, experience, and ingenuity to boost
productivity or create new products?
While direct measures still do not exist,
economists have used a variety of tech-
niques to measure knowledge activity
indirectly. 
One common indirect measure of
knowledge-based activity is simply the
number of people in occupations that use
high levels of knowledge to perform their
tasks. The Bureau of Labor Statistics
measures the difficulty, complexity, and
knowledge of U.S. occupations on an
occupational criteria scale. According to
this scale, knowledge occupations are
defined as management, professional, and
technical occupations. 
According to the measure, knowl-
edge-based activity has paced recent U.S.
economic growth. Growth in knowledge
occupations rose more than 2% annually
from 1991 to 2001, compared to 0.6%
for other occupations. High-knowledge
occupations accounted for a third of all
occupations in 2000, after accounting for
a fourth in 1980. 
While knowledge-based activity is
pacing U.S. economic growth, not all parts
of the country have shared equally in its
wealth. Metro areas tend to have larger
concentrations than their rural counter-
parts. According to the Census Bureau, the
knowledge economy accounts for a larger
The Main Street Economist May  2005
- 2 -
Table 1: Rural amd Metro Knowledge Occupations, 2000
Rural (Nonmetro) Metro
Worker Occupation Category Share in % with at least a Share in  % with at least a
occupation college degree occupation college degree
Professional, Misc. 9.9 73.1 11.7 74.6
Science, Engineering, and Computers 2.2 63.8 5.2 69.0
Healthcare Practitioner Professionals 2.7 61.4 3.3 71.2
Total 14.8 20.2
Management, Business, and Financial 10.9 32.5 12.7 49.6
Technicians 2.4 16.3 2.3 23.2
Sales 10.1 14.6 11.5 25.5
Protective 2.0 14.3 2.0 20.7
Admin Support 13.7 10.9 16.5 16.0
Total 28.3 32.3
Service 13.2 4.9 11.5 7.7
Installation, Maintenance, and Repair 5.9 4.4 4.8 6.3
Construction and Mining 5.5 4.3 4.4 5.3
Laborers 5.7 3.9 3.8 4.5
Production Operative 10.7 3.8 6.4 6.6
Transportation 5.0 3.5 3.9 5.6
Total 32.8 23.2
Source: U.S. Census Bureau, Housing and Household Economic Statistics Division, EEO Special Tabulationshare of metro employment than rural
employment. In metro areas, professional,
scientific, and healthcare occupations that
are filled by people with higher education
levels account for a larger share of employ-
ment than their rural counterparts. In 2000,
these high-knowledge occupations accounted
for 20.2% of employment in metro areas
but only 14.8% of employment in rural
areas (Table 1). Moreover, the educational
attainment level of the workers in these
occupations was much lower in rural than in
metro areas. For example, 63.8% of the rural
science occupations were filled by people
with at least a bachelor’s degree, compared to
69% of metro science occupations. The gap
was even wider in healthcare occupations.
Despite trailing metro areas in captur-
ing knowledge occupations, current rural
job growth is being driven by high-skill
industries often associated with the knowl-
edge economy. In 2004, producer service
industries—professional and business serv-
ices, financial and information services—
paced rural job growth as job rolls
expanded almost 4% above the previous
year. Producer service industries accounted
for roughly 13% of all rural jobs and
tended to employ a larger share of people
with higher levels of education. In contrast,
jobs in consumer services education, health
care, and retail trade—rose just 1.6%, with
the strongest gains in the higher-skilled
education and healthcare industries. 
Strategies to Build a Rural
Knowledge Economy
Some rural places have begun to tap
the knowledge economy. Many factors
influence the location of high-knowledge
occupations, ranging from high-skill labor
to the size and remoteness of rural commu-
nities. Because a variety of factors seem
critical to knowledge-based activity in rural
places, rural leaders use a variety of strate-
gies to strengthen their economies. 
Obviously, nurturing a high-quality
labor force is a major factor in building a
knowledge economy. Knowledge-occupa-
tions require people with higher skill levels.
Not surprisingly, places with larger concen-
trations of high-skill labor are more attrac-
tive to knowledge-based firms. Moreover,
people with high-skill levels are more likely
to generate new innovations and start
knowledge-based firms. Rural counties
with higher concentrations of high-skill
labor were found to have higher concentra-
tions of high-knowledge occupations. 
Tapping institutions of higher educa-
tion will be crucial if rural communities are
going to strengthen their knowledge
economies. First, of course, a local educa-
tional institution provides the education for
a high-skilled labor force. But perhaps just as
important, colleges and universities also gen-
erate research and development that can lead
to new commercial products, new firms, and
new jobs. Colleges and universities are a
primary generator and distributor of knowl-
edge through their research, teaching, and
outreach activities. Many of the economic
opportunities emerging in the knowledge
economy are being supported by rural insti-
tutions that are realigning themselves for the
21st century. Indeed, rural counties with a
college or university had higher concentra-
tions of high-knowledge occupations.
Many colleges and universities have
already brought knowledge to rural com-
munities by educating people and transfer-
ring technology and knowledge to firms.
Some are serving as catalysts for regional
partnerships and business networks. Fort
Lewis College in Durango, Colorado, was
the catalyst to the success of the San Juan
Forum in the Four Corners region of the
Southwest. Others serve as a broker of
services. For example, Oklahoma State
University-Okmulgee is helping manufac-
turers in northeast Oklahoma gain the
capacity and certification for Defense
Department contracts by helping firms
reengineer and reproduce parts for the
Defense Department. As a result,
Oklahoma vendors have increased their
share of contracts at Tinker Air Force Base
in Oklahoma City from 3% in 1995 to
20% in 2002.
Leveraging scenic amenities to attract
knowledge workers can be a straightfor-
ward strategy to build a knowledge
economy. Communities in scenic areas
have an advantage in attracting knowledge
workers by increasing quality-of-life ameni-
ties, which are becoming increasingly
important in worker location choices.
Research finds that scenic rural places have
higher levels of economic, population, and
income growth. Places with higher natural
amenities were also found to have higher
levels of high-tech industries, a subset of
high-knowledge industries. In a USDA
survey, over 70% of rural high-knowledge
producer-service firm owners indicated
that quality-of-life amenities were a major
factor in location choice. Natural ameni-
ties, especially topography, also appear to
have a strong relationship with the concen-
tration of knowledge occupations. 
Building 21st century infrastructure
may be necessary to support knowledge-
based activity in the future. Infrastructure,
such as interstate highways, has tradition-
ally influenced the location of economic
activity. Knowledge-based activities,
however, are less sensitive to traditional
infrastructure. In fact, the share of high-
knowledge occupations in rural counties
does not appear to be significantly related
to the presence of an interstate.
New forms of infrastructure, however,
such as broadband access, may be critical.
Broadband allows knowledge workers to
tap knowledge, information, and markets
in other parts of the world. In 1999, only
about 18,000 zip code areas had broad-
band access with only 3,023 areas served
by more than three carriers. By 2003,
access had reached more than 27,000 zip
code areas with more than 13,000 areas
served by more than three carriers. Because
broadband has only recently begun to
emerge in rural places, research identifying
the contribution of broadband access to
economic growth is limited, and most
success stories remain as anecdotes.
One illuminating success story is from
rural, western Maryland. To stimulate eco-
nomic activity, Garrett County, Maryland,
in cooperation with Garrett County
Community College, helped supply high-
speed access to the region’s businesses and
The Main Street Economist May 2005
- 3 -On the Web: www.kansascityfed.org/ruralcenter
The Main Street Economist May 2005
individuals through the Garrett Rural
Information Cooperative.1 Many businesses
have chosen to locate in Garrett County
because of the telecommunications capabili-
ties in the county. Currently, the co-op is
working on an information incubator to
house up to 20 start-up firms on the com-
munity college campus.
Building partnerships to overcome
size and remoteness may be the primary
key to sustaining rural knowledge-based
activity. Knowledge-based activity is associ-
ated with larger economies that provide
more knowledge resources. The size of
rural places is understandably an important
factor in the rural knowledge economy.
Rural places with larger economies offer
more potential for personal and firm inter-
actions. These interactions can reduce the
search costs for businesses seeking knowl-
edge and information in two ways. First,
larger economies have more firms, allowing
for easier communication and greater
potential for knowledge spillovers. Clusters
of firms in knowledge-rich locations foster
more innovations among firms. Of course,
knowledge breeds knowledge. Rural coun-
ties in regions with an established cluster of
knowledge activity had higher concentra-
tions of knowledge occupations.
Second, larger and more diverse
economies result in larger knowledge pools
that improve knowledge transfer and
reduce the cost of knowledge acquisition.
In general, the size of rural places limits
the interactions needed for the sharing of
knowledge. However, rural communities
with larger and more diverse economies
should provide larger pools of knowledge
and be more supportive of knowledge-
based activity. In fact, rural counties with a
town of greater than 10,000 people have a
higher share of knowledge occupations
than other counties. Even if the county did
not contain a large town, the share of high-
knowledge occupations was higher in
counties with higher population densities. 
The remoteness of rural places is often
thought to limit the ability of rural people
to obtain knowledge that exists in other
communities. Rural businesses in remote
locations must overcome a larger distance
to tap into knowledge pools. Advanced
communications technologies, such as the
Internet, however, may reduce the impact
of remoteness on rural knowledge-based
growth. For example, in response to a
USDA survey, the owner of a computer
programming firm relocated to Akron,
Colorado (pop. 1,174), because the infor-
mation highway made location irrelevant.
In fact, remoteness was found to be less of
a challenge in stimulating knowledge-
based activity than other factors. After
controlling for other factors, counties adja-
cent to a metro area did not have higher
shares of high-knowledge occupations
than other counties. 
Partnership is one way rural communi-
ties and businesses can pool knowledge
resources to further overcome the limita-
tions of size and remoteness. Regional part-
nerships can expand both the resource pool
and market potential to support knowledge-
based activity. Therefore, rural communities
may want to think regionally. By building
partnerships with neighboring places and
forming networks, rural communities can
capture some of the spillovers that produce
growth in a knowledge economy. 
In Maddock, North Dakota, the
Maddock Economic Development Council
(MEDC) formed the Maddock Business and
Technology Center in 1999 to create new
businesses and high paying jobs. The
MEDC created a high-growth business incu-
bator that provides training classes, business
services, and computer access for the com-
munity. The MEDC has fostered new
knowledge-based activity by incubating a
satellite imagery company, a multimedia
firm, an Internet woman’s magazine, and a
call center. MEDC also embarked on a
telemedicine project to improve the delivery
of rural health services.
Informal partnerships can also create
success at the firm level. Further west in
Dickinson, North Dakota, a $600 invest-
ment in 1995 was turned into a million
dollar company that develops and distributes
preschool curricula. Originating as a daycare
center, Funshine Express has emerged as a
knowledge company shipping over 1,500
preschool kits a month.2 The company’s
growth was fostered by participating in man-
ufacturing roundtables and regional eco-
nomic development programs. These
networks provided valuable business advice,
financial support, and technology transfers.
Conclusions
Knowledge is the new fuel powering
economic growth in the 21st century. By
spurring new ideas and innovations, knowl-
edge boosts productivity and creates new
products, new firms, new jobs, and new
opportunities. However, few rural places
have tapped this economic potential. Many
are asking where to start.
A variety of factors may be related to
knowledge-based growth. Larger rural com-
munities tend to have higher concentra-
tions of high-knowledge occupations
because they provide greater opportunities
for personal and firm interaction and the
sharing of knowledge. These rural commu-
nities tend to have larger pools of labor and
existing businesses. Communities with a
college or university also had high concen-
trations of knowledge occupations. Natural
amenities also appear to be attractive to
knowledge workers.
As a result, rural leaders are using a
variety of new strategies to strengthen their
own knowledge economy. Some are tapping
institutions of higher education for innova-
tions to jump-start their knowledge
economy. Others are leveraging local
amenities to attract knowledge workers. In
some rural communities, building new
infrastructures may be crucial to a future
knowledge economy. But another strategy
is perhaps even more essential—fostering
innovative, regional, entrepreneurial part-
nerships of people, businesses, communi-
ties, and institutions.
ENDNOTES
1The Garrett County Community College and addi-
tional community college case studies are published in
“Cultivating Successful Rural Economies: Benchmark
Practices at Community and Technical Colleges,” pro-
duced by Regional Technology Strategies, Inc. and avail-
able at www.rtsinc.org.
2 Funshine Express was highlighted as the Entrepreneur
of the Month by the Center for Rural Entrepreneurship.
A detailed case study is available at www.ruraleship.org.

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