Decomposing regional patenting rates: How the composition factor confounds the rate factor

Patents per capita is a widely used innovation indicator. Rural areas generally perform very poorly using this metric, suggesting that inventive activity that leads to patents is an urban phenomenon. However, newly available inventor-disambiguated patenting data demonstrate that inventions per inventor are roughly equal across urban and rural areas. A critical assessment of the patents-per-capita measure questions its construct validity. An alternative measure is constructed that empirically identifies a plausible ‘inventive class’ and does not confound the patenting rate with irrelevant information. This allows the decomposition of overall patenting rates into a compositional factor and a rate factor which leads to a more meaningful regional comparison of patenting productivity.