ITIF: Only four U.S. states are above world average in concentration of advanced industries

The United States faces intense competition in global markets for advanced technology industries. The Information Technology and Innovation Foundation (ITIF) article, "The State Hamilton Index: Most states underperform in advanced industries" by Meghan Ostertag reveals a concerning trend regarding the geographic distribution and overall strength of advanced industries within the U.S. The 2025 State Hamilton Index indicates that most U.S. states lag behind both the global average and China in their concentration of employment in advanced industries deemed crucial for economic growth and national security. Only four states don’t lag across multiple sectors, and only one beats China. 

ITIF warns of the systematic challenge with the U.S. underperforming the world average in employment concentration in the Hamilton Index industries. The industries are 

1. information technology (IT) and information services, including software and internet services;
2. computer, electronic, and optical products manufacturing;
3. pharmaceuticals and related products;
4. industrial machinery and equipment, including engines, turbines, and agricultural equipment;
5. motor vehicles, including the production of cars, trucks, other motor vehicles, and parts suppliers;
6. electrical equipment, including items such as relays, industrial controls, batteries, fiber optic cables, and household appliances; and
7. other transportation equipment industries, including aerospace, rail, and shipbuilding. 

These seven industries are considered strategically important due to their significant role in economic growth, innovation, and national security. The index uses the number of employees in these sectors to calculate each state’s location quotient (LQ). An LQ greater than one means the state's share of the national output in an industry is greater than the national average. Extensive empirical research over the past century has documented advantages to industry productivity and economic performance by being clustered or in network relationship with companies in related sectors. 

Only Washington, Virginia, Indiana, and Michigan exhibit a higher concentration of these industries compared to the world average; Washington is the sole state surpassing China in this metric. 

The core finding of the State Hamilton Index is the significant disparity in advanced industry presence among the states. The index clearly shows that advanced economic activity is not evenly distributed. A substantial majority of states exhibit a location quotient below one, signifying that their concentration in these high-value sectors lags behind the national average. This underperformance suggests a broad challenge for many states in fully participating in the advanced economy. 

The few states that outperform demonstrate varying strengths. As the top-ranked state, Washington showcases a particularly high concentration in key advanced industries, driven by its strong aerospace sector, robust software and IT industries, and growing presence in areas like biotechnology. Virginia's high ranking reflects its substantial presence in technology-related government contracting, a strong professional and technical services sector, and a growing cybersecurity industry. Its proximity to federal research institutions also contributes to its high ranking. Indiana's position suggests a strong base in advanced manufacturing, particularly in areas like automotive technology and pharmaceuticals, highlighting that advanced industries aren't solely confined to digital technologies.

The states at the bottom of the index, such as Wyoming, Louisiana, and Hawaii, reveal a significant lack of specialization in advanced industries. This lack of specialization could be due to various factors, including a reliance on traditional industries (e.g., energy, tourism) or a smaller or less diversified economic base. The article implies that states lagging in advanced industries may face future economic growth, job creation, and overall prosperity challenges. 

A critical finding is that only one U.S. state (Washington) surpasses China in its concentration of advanced industries, as mentioned above. This finding underscores the intense global competition and suggests that even the leading U.S. states must remain vigilant and proactive to maintain their edge. The fact that most states fall behind China highlights a systemic challenge for the U.S. economy. 

The article highlights the geographical concentration of advanced industries, providing examples such as biotech in Massachusetts and aerospace in Kansas. This concentration implies that states with a strong presence in those sectors benefit from specialized ecosystems, including skilled labor, established supply chains, and research institutions. For instance, Massachusetts' economic development policies have likely fostered the growth of its biotech industry through investments in research universities, incentives for biotech companies, and the creation of innovation clusters. Similarly, Kansas has historically supported its aerospace sector through workforce training programs and infrastructure development around key aerospace manufacturers. However, the geographical concentration of key sectors is not without danger, Ostertag writes. Too much concentration creates a national vulnerability by making the U.S. reliant on a limited number of states for specific critical industries.

Ostertag suggests the following policy implications for states aiming to strengthen their advanced industries and overall economic development: 

• States should identify their existing economic strengths and strategically focus on developing advanced industries where they have a competitive advantage. This strategy could involve targeted investments in research and development, workforce training programs aligned with the needs of these industries, and the creation of specialized infrastructure or industrial parks. For example, a state with a strong agricultural base might focus on developing the agricultural technology sector. 

• States should actively work to attract Foreign Direct Investment from countries that are strategic allies of the U.S. to bolster advanced industries. This attraction might include offering incentives, streamlining regulatory processes, and promoting the state’s business environment.
• The article strongly recommends that states cease offering tax breaks or other incentives to attract businesses with significant ties to China. States should instead focus their resources on supporting domestic companies and attracting investment from allied nations.
• States should participate in and leverage federal programs designed to support the growth of advanced industries, such as the CHIPS Act and Regional Technology Hub Programs.

• States should promote the development of regional technology hubs by encouraging collaboration between universities, research institutions, and private sector companies to foster innovation and the commercialization of new technologies, leading to the growth of advanced industries within the state.