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Industrial Diversification in Europe: The Differentiated Role of Relatedness

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  • Jing Xiao
  • Ron Boschma
  • Martin Andersson

Abstract

There is increasing interest in the drivers of industrial diversification, and how these depend on economic and industry structures. This article contributes to this line of inquiry by analyzing the role of industry relatedness in explaining variations in industry diversification, measured as the entry of new industry specializations, across 173 European regions during the period 2004–2012. First, we show that there are significant differences across regions in Europe in terms of industrial diversification. Second, we provide robust evidence showing that the probability that a new industry specialization develops in a region is positively associated with the new industry’s relatedness to the region’s current industries. Third, a novel finding is that the influence of relatedness on the probability of new industrial specializations depends on innovation capacity of a region. We find that relatedness is a more important driver of diversification in regions with a weaker innovation capacity. The effect of relatedness appears to decrease monotonically as the innovation capacity of a regional economy increases. This is consistent with the argument that high innovation capacity allows an economy to break from its past and to develop, for the economy, truly new industry specializations. We infer from this that innovation capacity is a critical factor for economic resilience and diversification capacity.

Suggested Citation

  • Jing Xiao & Ron Boschma & Martin Andersson, 2018. "Industrial Diversification in Europe: The Differentiated Role of Relatedness," Economic Geography, Taylor & Francis Journals, vol. 94(5), pages 514-549, October.
  • Handle: RePEc:taf:recgxx:v:94:y:2018:i:5:p:514-549
    DOI: 10.1080/00130095.2018.1444989
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    References listed on IDEAS

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    1. Heidenreich, Martin, 2009. "Innovation patterns and location of European low- and medium-technology industries," Research Policy, Elsevier, vol. 38(3), pages 483-494, April.
    2. 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.
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    6. Breschi, Stefano & Lissoni, Francesco & Malerba, Franco, 2003. "Knowledge-relatedness in firm technological diversification," Research Policy, Elsevier, vol. 32(1), pages 69-87, January.
    7. 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.
    8. Dieter F. Kogler & David L. Rigby & Isaac Tucker, 2013. "Mapping Knowledge Space and Technological Relatedness in US Cities," European Planning Studies, Taylor & Francis Journals, vol. 21(9), pages 1374-1391, September.
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    Citations

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    Cited by:

    1. Marte C.W. Solheim & Ron Boschma & Sverre Herstad, 2018. "Related variety, unrelated variety and the novelty content of firm innovation in urban and non-urban locations," Papers in Evolutionary Economic Geography (PEEG) 1836, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Oct 2018.
    2. repec:spr:anresc:v:60:y:2018:i:2:d:10.1007_s00168-017-0841-6 is not listed on IDEAS
    3. Ron Boschma, 2018. "The geographical dimension of structural change," Papers in Evolutionary Economic Geography (PEEG) 1839, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Nov 2018.
    4. repec:eee:respol:v:48:y:2019:i:3:p:693-705 is not listed on IDEAS
    5. Fulvio Castellacci & Davide Consoli & Artur Santoalha, 2018. "Technological Diversification in European Regions: The Role of E-skills," Working Papers on Innovation Studies 20181009, Centre for Technology, Innovation and Culture, University of Oslo.
    6. Barbieri, Nicolò & Consoli, Davide, 2019. "Regional diversification and green employment in US metropolitan areas," Research Policy, Elsevier, vol. 48(3), pages 693-705.
    7. Luis Carvalho & Mario Vale, 2018. "Biotech by Bricolage? Agency, institutional relatedness and new path development in peripheral regions," Papers in Evolutionary Economic Geography (PEEG) 1801, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jan 2018.
    8. Zoltán Elekes & Ron Boschma & Balázs Lengyel, 2018. "Foreign-owned firms as agents of structural change in regions: the case of Hungary 2000-2009," Papers in Evolutionary Economic Geography (PEEG) 1812, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Mar 2018.
    9. repec:gam:jsusta:v:11:y:2019:i:9:p:2679-:d:230130 is not listed on IDEAS

    More about this item

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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