From shock to recovery: The effects of export diversification and spatial dependencies on economic resilience of EU regions

Regional economic resilience, the capacity of regions to absorb and recover from external shocks, has gained renewed attention in light of recent crises. This paper examines how different forms of economic diversity shaped the resilience of European regions during the Global Financial Crisis of 2008/09. We distinguish between gross export diversification, value-added export diversification, and domestic sectoral diversity, thereby capturing both external and internal dimensions of economic structure. Our results show that regions with more diversified industrial structures and value-added export linkages experience significantly smaller output losses during the initial downturn. In contrast, the recovery phase is primarily driven by specialization in industrial activities and regional innovation capacity, which facilitate faster postcrisis adjustment. These findings remain robust when accounting for spatial spillovers across regions. Combining gross and value-added trade measures with regional industrial structures, this study provides novel evidence on the distinct channels through which diversity affects resilience. The results highlight a trade-off between short-term shock absorption and the speed of recovery, with important implications for regional development strategies and crisis preparedness.