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Most Improved States for Business 2013 Show Marked Change

An engineer and electrician working in Cambridge, Mass., May 23, 2013
Wendy Maeda | The Boston Globe | Getty Images
An engineer and electrician working in Cambridge, Mass., May 23, 2013

Two East Coast states share this year's honor as America's Most Improved States for Business. Massachusetts and Delaware each jump 12 places in our rankings.

Every state deals with shifts in the competitive landscape in its own way, but few states are buffeted by the winds of change the way Massachusetts is. The Bay State climbs to 16th place overall for 2013, up from 28th place last year. But that 12-place jump only begins to tell the story of Massachusetts' roller coaster ride through our rankings.

In 2007, the first year of our study, Mitt Romney had just wrapped up his one term as governor, and his landmark health care reform had begun taking effect. The state finished 12th overall, with strong showings in our categories Education, Access to Capital and Quality of Life—which includes health care. Under Gov. Deval Patrick, the state dropped to 15th in 2008, climbed to eighth in 2009, then made it to fifth—its only appearance in our Top Five—in 2010. The state slipped to sixth in 2011, before plunging to 28th in 2012. So while a 16th-place finish this year is respectable, Massachusetts has some work to do to reclaim its past glory.

(Watch: Economic Growth in 49 States)

Massachusetts owes most of its improvement to a jump in the Economy category, which improved to third place from 21st last year thanks to solid growth and an improving housing market. State finances are stable and Massachusetts offers a diverse industrial base. Massachusetts also saw significant improvements in Infrastructure, Workforce and Business Friendliness.

But Massachusetts lags badly in Cost of Doing Business, where it comes in 47th. And its acclaimed Education system slips to seventh place from third in 2012.

Delaware improves to 31st place from 43rd last year. The First State has a well-earned reputation as a welcoming place for business thanks to its Court of Chancery, which insulates businesses from the whims of juries. Roughly half of all publicly traded companies are incorporated in Delaware, according to the state's Division of Corporations.

But Delaware typically does poorly overall in America's Top States for Business because merely incorporating in the state is apparently more attractive than actually locating there.

While the state has made improvements in its traditionally high Cost of Doing Business, it still finishes in the middle of the pack at 24th in the category. And it falls to 27th from 19th in the Economy category.

Delaware owes its overall improvement to its perennial strong suit: Business Friendliness. The state returns to first place in the category this year, after an uncharacteristic 19th-place finish last year. Delaware had been under fire for what businesses saw as an overly aggressive unclaimed-property law that raised hundreds of millions of dollars in what the Council on State Taxation called a "stealth tax" on businesses.

(Read more: States Battle for Business)

The state enacted reforms this year, but stay tuned—those reforms are temporary.

Also showing big gains in 2013 is South Carolina, which rises nine places to 23rd overall. The Palmetto State saw sufficient improvement in its Cost of Doing Business to move solidly into the top half of our overall rankings. Vermont climbs seven places on improvements in Cost of Doing Business and Economy. But the Green Mountain State still finishes 32nd overall.

Rounding out the most improved is South Dakota, which jumps six spots as well to become America's Top State for Business 2013.

—By CNBC's Scott Cohn. Follow him on Twitter @ScottCohnCNBC.

  • Scott Cohn develops in-depth features, special reports and documentaries for CNBC and CNBC.com.

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