A composite index of the creative economy with application to regional best practices

This paper develops a “Composite Index of the Creative Economy” (CICE) for the purpose of benchmarking an entity’s (e.g., country or region) creative capacity as reflected by it’s achievement in three dimensions: Innovation, Entrepreneurship and Openness. To determine the weight each sub-dimension should contribute to the total value of the CICE, we introduce a novel method – endogenous weighting – that allows each entity to have its own unique set of “best” weights. This method addresses the issue of whether an entity’s CICE score value reflects underlying capabilities (or lack thereof) or an “inappropriate” weighting of the underlying dimensions. Our endogenous weight method isolates achievement on the underlying dimensions as the source of a higher or lower CICE score value. In this paper we construct a value of the CICE for each of nine regions: Baden-Württemberg, Catalonia, Flanders, Lombardy, Maryland, Nord-Pas-De-Calais, Quebec, Rhône-Alpes, Scotland. A region’s CICE value indicates its distance from “best practice” and can therefore be used to benchmark a region’s creative capacity relative to other regions. In this respect, a focus of our analysis is the relative creative capacity of Flanders. We also examine the absolute and relative achievement of each region on each of the three underlying dimensions to identify specific areas of strength or weakness. The results indicate that Baden-Württemberg ranks highest in terms of creative capacity while Nord-Pas-De-Calais ranks lowest among the nine regions. Flanders ranks 3rd behind 2nd ranked Maryland. However, Flanders’ rank masks that its CICE score value is 25% below that of Baden-Württemberg and 11% below that of Maryland, indicating a non-trivial gap in creative capacity between Flanders and “best practice.” On the three dimensions underlying creative capacity, Flanders ranks 2nd behind Baden-Württemberg on Innovation and Openness, but ranks 7th on Entrepreneurship (only ahead of Rhône-Alpes and Nord-Pas-De-Calais). Flanders’ relatively poor ranking on Entrepreneurship reflects it’s below average level of achievement on each of the three sub-dimensions of Entrepreneurship (ratio of newly established to existing firms, absence of a fear of failure, and venture capital as a share of GDP). This indicates that fostering and improving conditions for Entrepreneurship remains a challenge for Flanders compared to the other top ranked regions.