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.
Xiao J., Boschma R. & Andersson M. (2018) Industrial Diversification in Europe: The Differentiated Role of Relatedness. Economic Geography, 94(5), 514-549.
CIRCLE – Center for Innovation, Research, and Competence in the Learning Economy
The interview transcript
Our coffee breaks with researchers aim to spread knowledge about regional development and innovation. By sending a camera around the world we present you with different angles and insights on the topic. We ask researchers directly and in a personal manner about their work.
We want to make scientific knowledge accessible to all.
Hi, welcome to coffee break with researchers. Today I’m having a coffee break with Jing Xiao, she is a researcher at CIRCLE, the Center for Innovation, Research and Competence in the Learning Economy at Lund University in Sweden.
Hello Jing, thank you for accepting my invitation to our coffee break. How are you doing? Hello Lorena, I’m good thank you. How are you doing?
Today I’m having Indonesian black coffee, which drink are you having? Actually I have a cup of black tea. That’s great. I also like tea.
Today, I have read one of your latest papers, the one about industrial relatedness and how this can explain economic diversification. Could you please explain what the paper was about?
In this paper, we analyzed the role of industry relatedness in explaining the variations in industry specializations in European regions and we focus on the nature of regional industry diversification and investigated how the role of industry relatedness vary across regions with different levels of innovation capacity.
And I see that the key definition of your research is industrial relatedness.
Could you please define it?
Industry relatedness refers to the relatedness between industries, which means new industries that are related to the local current stock of industries are more likely to emerge in the region because they share similar resources and capacities in the region.
I find this concept indeed very important could you please tell me, which ones were your main findings? We have three main findings from this research.
First, we found that industry relatedness is a strong driver of predictors of regional industry diversification, which is consistent with the previous research. We also find that the result is quite robust and holding all regions under investigation no matter whether it concerns core knowledge regions, manufacturing regions or even peripheral regions.
Second we find that the role of industry relatedness varies across different levels of regions with different levels of innovation capacity and the effect of industry relatedness is more important for regions with low levels of innovation capacity.
And third we find that the role of industrial relatedness varies across different types of industries and industry relatedness plays a more important role in knowledge intensive sectors than in less knowledge intensive sectors.
I also want to know what was the main motivation in doing this research? Industry relatedness is a very important concept and is usually regarded as main driver of sustainable development and economic resilience for local economy. And in the literature industry diversification is described kind of emergent branching processes where new activities build upon and combine with existing related local activities and personally I’m more interested in the micro foundations of the process for example how individuals and firms are influenced by the relatedness when pursuing innovative and entrepreneurial activities and how these activities contribute to the emergence of new industries and how these activities are influenced by the natures of local characteristics for example the different levels of innovation capacities between regions and understanding the different role of industrial agencies among regions could provide us more important and general pictures of the nature of regional industry diversification, which is a first step of my research agenda in this field.
And based on your research what would you say is the main policy implication?
It is well recognized in regional policy that industry relatedness plays a very important role in abling industry diversification across regions in general but our research or our findings suggest that the policy may also should account for the innovation capacities of regions and I think there are at least two important implications that can be drawn from our research.
The first is that may not be properly to have this one-size-fits-all policies,
when it comes to regional industry diversification. Second is important to stimulate more unrelated diversification to avoid this lock-in situation especially for peripheral regions in the European Union.
Those were all my questions. Thank you very much again for joining me in this coffee break. I wish you all the best in your
future research and I hope to see you next time bye-bye.
Thank you, Lorena, thank you for inviting me for coffee break and see you next
Thank you for watching if you’re interested in more details about this research find here the link to the academic publication, bye bye
Tags: Europe, evolutionary economic geography, industrial diversification, regions resilience, related diversification