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Institutions and Diversification: Related versus Unrelated Diversification in a Varieties of Capitalism framework

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  • Ron Boschma
  • Gianluca Capone

Abstract

The Varieties of Capitalism literature has drawn little attention to industrial renewal and diversification, while the related diversification literature has neglected the institutional dimension of industrial change. Bringing together both literatures, the paper proposes that institutions have an impact on the direction of the diversification process, in particular on whether countries gain a comparative advantage in new sectors that are close or far from what is already part of their existing industrial structure. We investigate the diversification process in 23 developed countries by means of detailed product trade data in the period 1995-2010. Our results show that relatedness is a stronger driver of diversification into new products in coordinated market economies, while liberal market economies show a higher probability to move in more unrelated industries: their overarching institutional framework gives countries more freedom to make a jump in their industrial evolution. In particular, we found that the role of relatedness as driver of diversification into new sectors is stronger in the presence of institutions that focus more on ‘non-market’ coordination in the domains of labor relations, corporate governance relations, product market relations, and inter-firm relations.

Suggested Citation

  • Ron Boschma & Gianluca Capone, 2014. "Institutions and Diversification: Related versus Unrelated Diversification in a Varieties of Capitalism framework," Papers in Evolutionary Economic Geography (PEEG) 1421, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Nov 2014.
    • Handle: RePEc:egu:wpaper:1421
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    More about this item

    Keywords

    varieties of capitalism; institutions; relatedness; diversification; evolutionary economic geography;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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