IDEAS home Printed from https://ideas.repec.org/p/egu/wpaper/2208.html
   My bibliography  Save this paper

Relatedness in regional development: in search of the right specification

Author

Listed:
  • Yang Li
  • Frank Neffke

Abstract

A large body of research has documented that the size and growth of an industry in a city or region depends on the local size of related industries. However, there is no consensus on how to best measure, either the relatedness between industries, or how well a particular industry fits a local economy as a whole. In this paper, we perform a structured search over tens of thousands of specifications to identify optimal – in terms of out-of-sample predictions – ways to construct these quantities, using a dataset that allows us to derive relatedness from co-occurrence patterns of industries in establishments, firms, regions and countries. We find that these di

Suggested Citation

  • Yang Li & Frank Neffke, 2022. "Relatedness in regional development: in search of the right specification," Papers in Evolutionary Economic Geography (PEEG) 2208, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Apr 2022.
    • Handle: RePEc:egu:wpaper:2208
    as

    Download full text from publisher

    File URL: http://econ.geo.uu.nl/peeg/peeg2208.pdf
    File Function: Version May 2022
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rachata Muneepeerakul & José Lobo & Shade T Shutters & Andrés Goméz-Liévano & Murad R Qubbaj, 2013. "Urban Economies and Occupation Space: Can They Get “There” from “Here”?," PLOS ONE, Public Library of Science, vol. 8(9), pages 1-8, September.
    2. Michael Porter, 2003. "The Economic Performance of Regions," Regional Studies, Taylor & Francis Journals, vol. 37(6-7), pages 549-578.
    3. Koen Frenken & Ron A. Boschma, 2007. "A theoretical framework for evolutionary economic geography: industrial dynamics and urban growth as a branching process," Journal of Economic Geography, Oxford University Press, vol. 7(5), pages 635-649, September.
    4. repec:eme:rlec11:s0147-9121(06)26002-3 is not listed on IDEAS
    5. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    6. Robert R. Braam & Henk F. Moed & Anthony F. J. van Raan, 1991. "Mapping of science by combined co‐citation and word analysis. I. Structural aspects," Journal of the American Society for Information Science, Association for Information Science & Technology, vol. 42(4), pages 233-251, May.
    7. Delgado, Mercedes & Porter, Michael E. & Stern, Scott, 2014. "Clusters, convergence, and economic performance," Research Policy, Elsevier, vol. 43(10), pages 1785-1799.
    8. Jeroen Content & Koen Frenken, 2016. "Related variety and economic development: a literature review," European Planning Studies, Taylor & Francis Journals, vol. 24(12), pages 2097-2112, December.
    9. Mercedes Delgado & Michael E. Porter & Scott Stern, 2016. "Defining clusters of related industries," Journal of Economic Geography, Oxford University Press, vol. 16(1), pages 1-38.
    10. Shengjun Zhu & Canfei He & Yi Zhou, 2017. "How to jump further and catch up? Path-breaking in an uneven industry space," Journal of Economic Geography, Oxford University Press, vol. 17(3), pages 521-545.
    11. O’Clery, Neave & Kinsella, Stephen, 2022. "Modular structure in labour networks reveals skill basins," Research Policy, Elsevier, vol. 51(5).
    12. David Neumark & Junfu Zhang & Brandon Wall, 2007. "Employment Dynamics and Business Relocation: New Evidence from the National Establishment Time Series," Research in Labor Economics, in: Aspects of Worker Well-Being, pages 39-83, Emerald Group Publishing Limited.
    13. Fan, Joseph P H & Lang, Larry H P, 2000. "The Measurement of Relatedness: An Application to Corporate Diversification," The Journal of Business, University of Chicago Press, vol. 73(4), pages 629-660, October.
    14. Loet Leydesdorff, 2008. "On the normalization and visualization of author co‐citation data: Salton's Cosine versus the Jaccard index," Journal of the American Society for Information Science and Technology, Association for Information Science & Technology, vol. 59(1), pages 77-85, January.
    15. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December.
    16. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171, Elsevier.
    17. Hidalgo, César A., 2023. "The policy implications of economic complexity," Research Policy, Elsevier, vol. 52(9).
    18. Ron Boschma & Asier Minondo & Mikel Navarro, 2013. "The Emergence of New Industries at the Regional Level in S pain: A Proximity Approach Based on Product Relatedness," Economic Geography, Clark University, vol. 89(1), pages 29-51, January.
    19. Leland D. Crane & Ryan A. Decker, 2019. "Business Dynamics in the National Establishment Time Series (NETS)/Leland Crane, Ryan Decker," Finance and Economics Discussion Series 2019-034, Board of Governors of the Federal Reserve System (U.S.).
    20. Petralia, Sergio & Balland, Pierre-Alexandre & Morrison, Andrea, 2017. "Climbing the ladder of technological development," Research Policy, Elsevier, vol. 46(5), pages 956-969.
    21. Ulrich Schetter, 2019. "A Structural Ranking of Economic Complexity," CID Working Papers 119a, Center for International Development at Harvard University.
    22. Andres Gomez-Lievano & Oscar Patterson-Lomba & Ricardo Hausmann, 2016. "Explaining the Prevalence, Scaling and Variance of Urban Phenomena," CID Working Papers 329, Center for International Development at Harvard University.
    23. Glenn Ellison & Edward L. Glaeser & William R. Kerr, 2010. "What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns," American Economic Review, American Economic Association, vol. 100(3), pages 1195-1213, June.
    24. Frank Neffke & Martin Henning & Ron Boschma, 2011. "How Do Regions Diversify over Time? Industry Relatedness and the Development of New Growth Paths in Regions," Economic Geography, Clark University, vol. 87(3), pages 237-265, July.
    25. Pierre-Alexandre Balland & Ron Boschma & Joan Crespo & David L. Rigby, 2019. "Smart specialization policy in the European Union: relatedness, knowledge complexity and regional diversification," Regional Studies, Taylor & Francis Journals, vol. 53(9), pages 1252-1268, September.
    26. Markus Grillitsch, 2016. "Institutions, smart specialisation dynamics and policy," Environment and Planning C, , vol. 34(1), pages 22-37, February.
    27. Andrea Tacchella & Andrea Zaccaria & Marco Miccheli & Luciano Pietronero, 2021. "Relatedness in the Era of Machine Learning," Papers 2103.06017, arXiv.org.
    28. Pierre-Alexandre Balland & Cristian Jara-Figueroa & Sergio G. Petralia & Mathieu P. A. Steijn & David L. Rigby & César A. Hidalgo, 2020. "Complex economic activities concentrate in large cities," Nature Human Behaviour, Nature, vol. 4(3), pages 248-254, March.
    29. Muhammed A. Yildirim, 2021. "Sorting, Matching and Economic Complexity," CID Working Papers 392, Center for International Development at Harvard University.
    30. Neffke, Frank M.H. & Otto, Anne & Weyh, Antje, 2017. "Inter-industry labor flows," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 275-292.
    31. David J. Bryce & Sidney G. Winter, 2009. "A General Interindustry Relatedness Index," Management Science, INFORMS, vol. 55(9), pages 1570-1585, September.
    32. Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," Papers 0909.3890, arXiv.org.
    33. Andres Gomez-Lievano, 2018. "Methods and Concepts in Economic Complexity," Papers 1809.10781, arXiv.org, revised Oct 2018.
    34. Richard Florida & Charlotta Mellander & Kevin Stolarick, 2012. "Geographies of scope: an empirical analysis of entertainment, 1970--2000," Journal of Economic Geography, Oxford University Press, vol. 12(1), pages 183-204, January.
    35. repec:idb:brikps:34668 is not listed on IDEAS
    36. Moshe Farjoun, 1994. "Beyond Industry Boundaries: Human Expertise, Diversification and Resource-Related Industry Groups," Organization Science, INFORMS, vol. 5(2), pages 185-199, May.
    37. C'esar A. Hidalgo, 2022. "The Policy Implications of Economic Complexity," Papers 2205.02164, arXiv.org, revised Aug 2023.
    38. C. A. Hidalgo & B. Klinger & A. -L. Barabasi & R. Hausmann, 2007. "The Product Space Conditions the Development of Nations," Papers 0708.2090, arXiv.org.
    39. Ron Martin & Peter Sunley, 2006. "Path dependence and regional economic evolution," Journal of Economic Geography, Oxford University Press, vol. 6(4), pages 395-437, August.
    40. Monica Coffano & Dominique Foray, 2014. "The Centrality of Entrepreneurial Discovery in Building and Implementing a Smart Specialisation Strategy," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2014(1), pages 33-50.
    41. David J. Teece & Richard Rumelt & Giovanni Dosi & Sidney Winter, 2000. "Understanding Corporate Coherence: Theory and Evidence," Chapters, in: Innovation, Organization and Economic Dynamics, chapter 9, pages 264-293, Edward Elgar Publishing.
    42. David L. Rigby & Christoph Roesler & Dieter Kogler & Ron Boschma & Pierre-Alexandre Balland, 2022. "Do EU regions benefit from Smart Specialisation principles?," Regional Studies, Taylor & Francis Journals, vol. 56(12), pages 2058-2073, December.
    43. Ron Boschma, 2022. "Evolutionary Economic Geography and Policy," Papers in Evolutionary Economic Geography (PEEG) 2220, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Oct 2022.
    44. Koen Frenken & Frank Van Oort & Thijs Verburg, 2007. "Related Variety, Unrelated Variety and Regional Economic Growth," Regional Studies, Taylor & Francis Journals, vol. 41(5), pages 685-697.
    45. Diodato, Dario & Neffke, Frank & O’Clery, Neave, 2018. "Why do industries coagglomerate? How Marshallian externalities differ by industry and have evolved over time," Journal of Urban Economics, Elsevier, vol. 106(C), pages 1-26.
    46. Ron Boschma & Asier Minondo & Mikel Navarro, 2012. "Related variety and regional growth in Spain," Papers in Regional Science, Wiley Blackwell, vol. 91(2), pages 241-256, June.
    47. Sandro Montresor & Francesco Quatraro, 2017. "Regional Branching and Key Enabling Technologies: Evidence from European Patent Data," Economic Geography, Taylor & Francis Journals, vol. 93(4), pages 367-396, August.
    48. Loet Leydesdorff & Liwen Vaughan, 2006. "Co‐occurrence matrices and their applications in information science: Extending ACA to the Web environment," Journal of the American Society for Information Science and Technology, Association for Information Science & Technology, vol. 57(12), pages 1616-1628, October.
    49. Edward L. Glaeser, 2005. "Reinventing Boston: 1630--2003," Journal of Economic Geography, Oxford University Press, vol. 5(2), pages 119-153, April.
    50. Miguel R. Guevara & Dominik Hartmann & Manuel Aristarán & Marcelo Mendoza & César A. Hidalgo, 2016. "The research space: using career paths to predict the evolution of the research output of individuals, institutions, and nations," Scientometrics, Springer;Akadémiai Kiadó, vol. 109(3), pages 1695-1709, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Li, Yang & Neffke, Frank M.H., 2024. "Evaluating the principle of relatedness: Estimation, drivers and implications for policy," Research Policy, Elsevier, vol. 53(3).
    2. Matthias Firgo & Peter Mayerhofer, 2015. "Wissens-Spillovers und regionale Entwicklung - welche strukturpolitische Ausrichtung optimiert des Wachstum?," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 144, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    3. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "Reprint of The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(8).
    4. Matthias Firgo & Peter Mayerhofer, 2015. "Wissensintensive Unternehmensdienste, Wissens-Spillovers und regionales Wachstum. Teilprojekt 1: Wissens-Spillovers und regionale Entwicklung – Welche strukturpolitische Ausrichtung optimiert das Wach," WIFO Studies, WIFO, number 58342, April.
    5. Frank Neffke & Matté Hartog & Ron Boschma & Martin Henning, 2018. "Agents of Structural Change: The Role of Firms and Entrepreneurs in Regional Diversification," Economic Geography, Taylor & Francis Journals, vol. 94(1), pages 23-48, January.
    6. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(3).
    7. O’Clery, Neave & Kinsella, Stephen, 2022. "Modular structure in labour networks reveals skill basins," Research Policy, Elsevier, vol. 51(5).
    8. Koen Frenken & Frank Neffke & Alje van Dam, 2023. "Capabilities, institutions and regional economic development: a proposed synthesis," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 16(3), pages 405-416.
    9. Simón Sánchez‐Moral & Mário Vale & Alfonso Arellano, 2022. "Skill‐Relatedness and Regional Economic Development in Spain during the International Crisis and the Post‐Crisis Period," Papers in Regional Science, Wiley Blackwell, vol. 101(3), pages 573-602, June.
    10. Hidalgo, César A., 2023. "The policy implications of economic complexity," Research Policy, Elsevier, vol. 52(9).
    11. Alessia Lo Turco & Daniela Maggioni, 2017. "Local Discoveries and Technological Relatedness: the Role of Foreign Firms," Papers in Evolutionary Economic Geography (PEEG) 1710, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jun 2017.
    12. Pinheiro, Flávio L. & Hartmann, Dominik & Boschma, Ron & Hidalgo, César A., 2022. "The time and frequency of unrelated diversification," Research Policy, Elsevier, vol. 51(8).
    13. Bahar, Dany & Rosenow, Samuel & Stein, Ernesto & Wagner, Rodrigo, 2019. "Export take-offs and acceleration: Unpacking cross-sector linkages in the evolution of comparative advantage," World Development, Elsevier, vol. 117(C), pages 48-60.
    14. Jürgen Essletzbichler, 2013. "Relatedness, industrial branching and technological cohesion in U.S. metropolitan areas," Papers in Evolutionary Economic Geography (PEEG) 1307, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised May 2013.
    15. Lars Mewes & Tom Broekel, 2020. "Subsidized to change? The impact of R&D policy on regional technological diversification," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 65(1), pages 221-252, August.
    16. Jefferson Ricardo Bretas Galetti & Milene Simone Tessarin & Paulo Cesar Morceiro, 2021. "Skill relatedness, structural change and heterogeneous regions: evidence from a developing country," Papers in Regional Science, Wiley Blackwell, vol. 100(6), pages 1355-1376, December.
    17. Matias Nehuen Iglesias, 2021. "The Overlooked Insights from Correlation Structures in Economic Geography," Papers in Evolutionary Economic Geography (PEEG) 2105, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jan 2021.
    18. Jian Gao & Bogang Jun & Alex Sandy Pentland & Tao Zhou & Cesar A. Hidalgo, 2017. "Collective Learning in China's Regional Economic Development Formations of Co-Inventors During the Dot-com Bubble in the Research Triangle Region," Papers in Evolutionary Economic Geography (PEEG) 1706, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Mar 2017.
    19. Alessia Lo Turco & Daniela Maggioni, 2016. "On firms’ product space evolution: the role of firm and local product relatedness," Journal of Economic Geography, Oxford University Press, vol. 16(5), pages 975-1006.
    20. Jian Gao & Bogang Jun & Alex Sandy Pentland & Tao Zhou & Cesar A. Hidalgo, 2017. "Collective Learning in China's Regional Economic Development," Papers 1703.01369, arXiv.org.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:egu:wpaper:2208. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/deguunl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.