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A General Inter-Industry Relatedness Index

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Author Info
David Bryce
Sidney Winter

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Abstract

Firm growth and expansion is widely believed to be guided by the desire to leverage existing resources. But which resources? The answer depends largely on context.the peculiarities of industries, firms, technologies, production, customers, and a host of other dimensions. This fact makes pointing to any particular set of resources as the source of expansion decisions potentially problematic and makes more difficult tests of theories such as the resource-based view of the firm. This paper tackles the problem by developing a general inter-industry relatedness index that can be usefully applied across industry and firm contexts. The index harnesses the relatedness information embedded in the multi-product organization and diversification decisions of every firm in the US manufacturing economy. The index is general in that it implicitly varies the underlying resources upon which expansion proceeds with the industries in question and provides a percentile relatedness rank for every possible pair of fourdigit SIC manufacturing industries. The general index is tested for predictive validity and found to perform as expected. Applications of the index in strategy research are suggested.

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File URL: http://webserver01.ces.census.gov/index.php/ces/1.00/cespapers?down_key=101771
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Publisher Info
Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 06-31.

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Length: 39 pages
Date of creation: Dec 2006
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Handle: RePEc:cen:wpaper:06-31

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Web page: http://www.ces.census.gov

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  1. Montgomery, Cynthia A. & Hariharan, S., 1991. "Diversified expansion by large established firms," Journal of Economic Behavior & Organization, Elsevier, vol. 15(1), pages 71-89, January. [Downloadable!] (restricted)
  2. Arora, Ashish & Fosfuri, Andrea & Gambardella, Alfonso, 2001. "Specialized technology suppliers, international spillovers and investment: evidence from the chemical industry," Journal of Development Economics, Elsevier, vol. 65(1), pages 31-54, June. [Downloadable!] (restricted)
  3. Coase, R H, 1992. "The Institutional Structure of Production," American Economic Review, American Economic Association, vol. 82(4), pages 713-19, September. [Downloadable!] (restricted)
  4. Cynthia A. Montgomery & Birger Wernerfelt, 1988. "Diversification, Ricardian Rents, and Tobin's q," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 623-632, Winter. [Downloadable!] (restricted)
  5. Richardson, G B, 1972. "The Organisation of Industry," Economic Journal, Royal Economic Society, vol. 82(327), pages 883-96, September. [Downloadable!] (restricted)
  6. Constance E. Helfat & Marvin B. Lieberman, 2002. "The birth of capabilities: market entry and the importance of pre-history," Industrial and Corporate Change, Oxford University Press, vol. 11(4), pages 725-760, August.
  7. Panzar, John C & Willig, Robert D, 1981. "Economies of Scope," American Economic Review, American Economic Association, vol. 71(2), pages 268-72, May. [Downloadable!] (restricted)
  8. Jacquemin, Alexis P & Berry, Charles H, 1979. "Entropy Measure of Diversification and Corporate Growth," Journal of Industrial Economics, Blackwell Publishing, vol. 27(4), pages 359-69, June. [Downloadable!] (restricted)
  9. Berry, Charles H, 1971. "Corporate Growth and Diversification," Journal of Law & Economics, University of Chicago Press, vol. 14(2), pages 371-84, October.
  10. Teece, David J., 1982. "Towards an economic theory of the multiproduct firm," Journal of Economic Behavior & Organization, Elsevier, vol. 3(1), pages 39-63, March. [Downloadable!] (restricted)
  11. Winter, Sidney G, 1988. "On Coase, Competence, and the Corporation," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 163-80, Spring.
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