Hawaii at Bottom of State Entrepreneurship Index

By Sonia Isotov

The state of Hawaii fell four spots to No. 45 in the newly released State Entrepreneurship Index (SEI), a nationwide analysis and ranking system that compares how states stack up in terms of business formation and innovation.

Massachusetts is No. 1 in the SEI, followed by North Dakota, California, New York and Minnesota. Also in the Top 10 this year were Oregon, New Jersey, New Hampshire and Illinois. Texas, at No. 8.

Hawaii (45) led the bottom five ranked states along with Kentucky (46), Mississippi (47), South Carolina (48), Michigan (49), and Louisiana (50).

Economists at University of Nebraska-Lincoln’s (UNL) of Business Research and Department of Economics developed the annual SEI by combining five key components — a state’s percentage growth and per capita growth of business establishments, its business formation rate, the number of patents per thousand residents and income per non-farm proprietor in each state.

The result is a comprehensive look at the levels of entrepreneurship in each state over the past year, according to Eric Thompson, an UNL associate professor of economics and director of the bureau.

“To reach the top of the rankings, a state had to do very well in at least four of the five categories that made up the index,” Thompson said, in a written statement.

A state index for each component is assigned based on how much each state’s performance is above or below the median of all state data, which has a value of 1.0. For example, a component one standard deviation above the median gets a value of 2.0, while a component one below is assigned a value of zero. A state’s overall SEI number is the average of the five index values.

For 2011, the latest year for data, Massachusetts’ score was 3.01, thanks to its vigor in four of the five components, including both measures of establishment growth, patent activity and income per proprietor. North Dakota (2.52), California (2.39), New York (2.23) and Minnesota (1.79) completed the top five.

Hawaii ranked among a handful of states that experienced steep drops in the current rankings: South Carolina (0.19) was No. 48, behind Mississippi (0.29), Kentucky (0.30) and Hawaii (0.34).

The State Entrepreneurship Index combines detailed data from the Bureau of Labor Statistics, the Internal Revenue Service’s Statistics of Income Bulletin, the US Census Bureau and the US Statistical Abstract.

The report is available at the bureau’s website, http://bbr.unl.edu.