Washington, Virginia, and Indiana Lead National Ranking of Advanced Industry Specialization, But Most States Lag Behind Global Average, New Report Finds

WASHINGTON-Washington, Virginia, and Indiana have the highest concentrations of employment in advanced industries, while all but four U.S. states are less specialized in advanced industries than the global average, and only one is ahead of China, according to a new report by the Information Technology and Innovation Foundation (ITIF).

ITIF's study analyzes and ranks all 50 states and the District of Columbia based on their shares of employment and output in 21 advanced industries across seven industrial groupings, from IT and information services to computer hardware and electronics, to pharmaceuticals and biotechnology.

"Innovation-driven production is key to reclaiming U.S. dominance on the international stage. So, it comes as a wakeup call that all but a few state economies underperform the global average in advanced industries," said ITIF President Robert D. Atkinson. "The fact that only Washington State is ahead of China underscores the urgent need for a coordinated national industrial strategy that aligns federal and state policies toward a common goal of strengthening domestic production in key sectors."

ITIF uses an analytical statistic known as a location quotient (LQ) to assess states' levels of industrial concentration in individual advanced industries and in a composite index. Washington ranks first overall with an LQ of 1.79, meaning its industrial concentration level is 79 percent above the national average. It is followed by Virginia in second place (LQ of 1.58), Indiana (3rd), Michigan (4th), and California (5th).

At the other end of the spectrum, New Mexico ranks 47th (63 percent below average), Montana ranks 48th (65 percent below average), Wyoming is 49th (67 percent below average), Louisiana is 50th (69 percent below average), and Hawaii ranks last (82 percent below average).

"This isn't just a ranking-it's a national roadmap for domestic employment and production in advanced industries," said Meghan Ostertag, a research assistant for economic policy at ITIF, who authored the report. "When you analyze the data in relative terms to control for the size of each state's economy, it's clear that America's opportunities and challenges in advanced industries extend far beyond places like California."

Industry leaders in each group include:

1. Information technology (IT) and information services: California is the leading producer with 21.6 percent of total U.S. output-but Virginia is the leading specialist, based on the size of its economy, with an LQ of 2.44.
2. Computers, electronics, and optical products: California leads production here too, contributing just over 20 percent of national output, but New Hampshire is the leading specialist with an LQ of 3.12.
3. Pharmaceuticals and biotechnology: California again leads in total output at 24.2 percent of the U.S. total, while Maine holds the highest level of specialization with an LQ of 4.30.
4. Electrical equipment: California leads production with 7.5 percent of national output, but Wisconsin's LQ of 4.70 makes it the most specialized state economy.
5. Machinery and equipment: Ohio leads in production with 7.3 percent of national output, while Iowa has the highest specialization with an LQ of 4.10.
6. Motor vehicles: Michigan leads production in this sector group at 16.9 percent, yet Indiana holds the highest level of specialization with an LQ of 7.94.
7. Other transport equipment: California is the leading producer at 12.6 percent of total output in this industry group, but Kansas is the most specialized with an LQ of 5.40.

Other key takeaways and trends from the composite rankings include:

• Nineteen states have composite LQs above 1.00, meaning they are above the national average in the aggregate output in the 21 Hamilton subindustries.
• Thirty-one states and the District of Columbia underperform relative to the national benchmark across all Hamilton industries.
• States ranking highest overall are those anchored by high-tech industries (like Virginia, California, and Massachusetts) or manufacturing hubs (such as Indiana, Michigan, and Kansas).
• Rural states, including Oklahoma and Wyoming, underperform, reflecting their dependence on low-tech, agrarian, or service-based industries.
• Surprisingly, states with major urban centers rank below the national average in advanced industry concentration, such as Texas (LQ of 0.84), New York (LQ of 0.73), and Florida (LQ of 0.50).

"America once was the global leader in producing advanced technologies, but now it has less capacity than the global average," Atkinson noted. "This is a dire situation. Success in these traded-sector, advanced-technology industries directly impacts economic strength and national security. To meet the challenge of maintaining a competitive edge against China, the federal government needs to partner with states to establish a national industrial strategy that prioritizes strategically important, dual-purpose industries."

While it's important for states to pursue their own economic development efforts, ITIF argues it is equally critical for the federal government to partner with them to coordinate a national development strategy in advanced industries. To that end, the report offers four policy recommendations for Congress and state governments:

• Stop using taxpayer dollars to attract Chinese companies to the United States. Congress should ban federal subsidies for Chinese firms and make state economic development aid conditional on the same restriction. This would prevent taxpayer dollars from supporting America's top industrial competitor while still allowing incentives for domestic and allied foreign investment.
• Establish grant programs for states to attract FDI and support domestic advanced technology production. Congress should create a $5 billion annual grant program under the Commerce Department to support state-led initiatives that attract foreign and domestic investment in advanced industries. Modeled after the CHIPS Act, this program would match state funds for projects in traded sectors like biotech or machinery to boost U.S. competitiveness.
• Retool the regional technology hub programs. Congress should consolidate fragmented tech hub programs by focusing funding through just the NSF and EDA, limiting support to 15 strategically chosen regions. This would ensure specialization, avoid duplication, and align investments with key technology sectors identified in the Hamilton Index.
• Host an annual National Economic Development Summit. The federal government should host an annual summit to align state and federal strategies. This forum would foster coordination on regulations, grant programs, and interstate collaboration to strengthen U.S. competitiveness.

"Across-the-board tariffs are not likely to do much to improve America's competitive position in advanced industries, because most of them rely on foreign markets for a considerable portion of sales, and aggressive U.S. trade protection will lead to an equal response," Atkinson concluded. "If we want to outcompete China, then we need a unified national growth strategy that leverages comparative advantages at the state level, fosters innovation clusters, and commits to sustained investment in advanced industries."

• Read the full report.
• Browse the interactive data visualization.