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Skill-relatedness and firm diversification

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Frank Neffke
Martin Svensson Henning

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Abstract

The concept of "relatedness" between industries plays an increasingly central role in economics and strategic management. However, relatedness has remained rather elusive in empirical terms. In this article, we investigate relatedness between industries in terms of the extent to which the same human capital can be employed in different industries. In particular, we investigate the skill-relatedness among different industries by investigating labor flows between industries. The data used are Swedish employer linked data on individuals. Our statistical framework assesses the degree to which labor flows between pairs of industries are in excess of expected levels and use this as a quantification of Revealed Skill Relatedness. A network picture of 435 4-digit industries and the relatedness linkages between them shows that the relations among industries are far more complex than the industrial classification system suggests. Moreover, when investigating corporate diversification, we find that firms are far more likely to diversify into industries that are strongly skill-related to their core activities industries than into unrelated industries.

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Paper provided by Max Planck Institute of Economics, Evolutionary Economics Group in its series Papers on Economics and Evolution with number 2009-06.

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Date of creation: Jun 2009
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Handle: RePEc:esi:evopap:2009-06

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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. Ingram, Beth F. & Neumann, George R., 2006. "The returns to skill," Labour Economics, Elsevier, vol. 13(1), pages 35-59, February. [Downloadable!] (restricted)
  3. Breschi, Stefano & Lissoni, Francesco & Malerba, Franco, 2003. "Knowledge-relatedness in firm technological diversification," Research Policy, Elsevier, vol. 32(1), pages 69-87, January. [Downloadable!] (restricted)
  4. Richard R. Nelson, 1995. "Recent Evolutionary Theorizing about Economic Change," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 48-90, March. [Downloadable!] (restricted)
  5. C. A. Hidalgo & B. Klinger & A. -L. Barabasi & R. Hausmann, 2007. "The Product Space Conditions the Development of Nations," Quantitative Finance Papers 0708.2090, arXiv.org. [Downloadable!]
  6. Maxim Poletaev & Chris Robinson, 2008. "Human Capital Specificity: Evidence from the Dictionary of Occupational Titles and Displaced Worker Surveys, 1984-2000," Journal of Labor Economics, University of Chicago Press, vol. 26(3), pages 387-420, 07. [Downloadable!] (restricted)
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  7. Frank Neffke & Martin Svensson Henning & Ron Boschma, 2008. "Surviving in agglomerations: Plant evolution and the changing benefits of the local environment," Papers in Evolutionary Economic Geography (PEEG) 0820, Utrecht University, Section of Economic Geography, revised Dec 2008. [Downloadable!]
  8. Mika Maliranta & Tuomo Nikulainen, 2008. "Labour Force Paths as Industry Linkages: A Perspective on Clusters and Industry Life Cycles," Discussion Papers 1168, The Research Institute of the Finnish Economy. [Downloadable!]
  9. 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. [Downloadable!] (restricted)
  10. David Bryce & Sidney Winter, 2006. "A General Inter-Industry Relatedness Index," Working Papers 06-31, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  11. Teece, David J. & Rumelt, Richard & Dosi, Giovanni & Winter, Sidney, 1994. "Understanding corporate coherence : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 23(1), pages 1-30, January. [Downloadable!] (restricted)
  12. Lemelin, Andre, 1982. "Relatedness in the Patterns of Interindustry Diversification," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 646-57, November. [Downloadable!] (restricted)
  13. Dosi, Giovanni, 1988. "Sources, Procedures, and Microeconomic Effects of Innovation," Journal of Economic Literature, American Economic Association, vol. 26(3), pages 1120-71, September. [Downloadable!] (restricted)
  14. 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)
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