How Do Regions Diversify over Time Industry Relatedness and the Development of New

How Do Regions Diversify over Time?

Authors and Contact Information

• Frank NeffkeErasmus School of EconomicsErasmus University RotterdamPO Box 1738, 3000 DR Rotterdam, NetherlandsEmail: neffke@ese.eur.nl

• Martin HenningDepartment of Human GeographyLund UniversitySölvegatan 12, 223 62 Lund, SwedenEmail: martin@keg.lu.se

• Ron BoschmaUrban and Regional Research Centre UtrechtUtrecht UniversityPO Box 80 115, NL-3508 TC Utrecht, NetherlandsEmail: r.boschma@geo.uu.nl

Abstract

This paper discusses the emergence of new regional growth paths within the framework of economic geography, concentrating on how regions evolve technologically and industrially over time. The analysis emphasizes the concept of technological relatedness, illustrating that regions tend to branch into industries that are technologically related to existing sectors. The study is based on a comprehensive analysis of the economic evolution of 70 Swedish regions from 1969 to 2002 and highlights significant long-term economic trends characterized by strong path dependencies. It was found that industries entering a region often relate closely to preexisting industries, thereby fostering regional cohesion or leading to diversification.

Keywords

• Technological relatedness

• Related variety

• Regional branching

• Regional diversification

• Evolutionary economic geography

Acknowledgments

The authors extend their gratitude for the financial support received from the Bank of Sweden Tercentenary Foundation, the Netherlands Organisation for Scientific Research, and the Jan Wallanders och Tom Hedelius Stiftelse. The research underlines the importance of considering qualitative shifts in regional development rather than solely quantitative changes, stressing the significance of creative destruction in economic contexts. This concept refers to the ongoing process through which industries are born and die, leading to dynamic shifts in regional economies.

Introduction to Regional Development

The study contextualizes the historical background by revisiting theoretical works from the 1980s that examined the geographic implications of economic shifts. Notable cases, such as the success of Silicon Valley and the challenges faced by aging industrial regions, underscore the varying trajectories of regional growth. Despite the importance of understanding these dynamics, there has been a lack of systematic studies focusing on how regions diversify and adapt over extended periods.

Theoretical Framework

The paper proposes a novel analytical approach centered on technological relatedness to comprehend structural transformations within regions. It posits the idea of path dependence, suggesting that regions tend to diversify into industries that are aligned with their existing sectors, thereby reinforcing either industrial cohesion or disintegration.

Methodology and Analysis

• Industry SpaceThis model represents the economy as an interconnected network of industries, all bound by technological relatedness. The methodology employs new quantitative analyses to effectively capture the dynamics of structural changes occurring in various regions over time.

• Data and ApproachThe analysis encompasses 174 manufacturing industries across 70 Swedish regions, employing empirical methods to illustrate how the inflow and outflow of industries affect regional economies and the technological cohesiveness of those regions.

Findings on Regional Economies

The findings reveal substantial structural alterations in the economic landscape since 1969, with the persistence of certain industries. A strong positive correlation is noted between technological relatedness and the growth of industries within the regions.

Linköping Case Study

• Overview of LinköpingLinköping exemplifies a midsized region recognized for its historical strengths in manufacturing and aviation technology, which has evolved towards embracing high-tech industries. This case illustrates the role of technological clustering in determining the dynamics of industry entry and exit in regional economies.

• Industrial CohesionHistorically, Linköping exhibited low industrial cohesion; however, this has improved due to strategic related entries and restructuring efforts. Additionally, the region has faced cascading exits, primarily driven by technological unrelatedness and the early departure of significant industries, adversely affecting its economic stability.

Conclusions and Future Research Directions

• Summary of FindingsThe analysis concludes that regional diversification predominantly follows a path-dependent trajectory, with the entry of technologically related industries serving as a critical driver for growth. The findings indicate that while industry entry might decrease technological cohesion initially, exits from industries tend to increase it. This dynamic reveals an evolving model of industry interactions and trajectories within regional economies.

• Policy ImplicationsThe research suggests that policymakers need to be acutely aware that attracting new industries should be grounded in their technological relatedness to existing sectors. Stimulating effective knowledge-transfer mechanisms is vital for embedding new industries and ensuring robust growth in regional economies.

• Future Research AgendaThe study highlights the necessity for continued exploration into the mechanisms of knowledge-transfer, a deeper understanding of the subtleties of regional growth paths, and evaluating the interactions between regions on diversification outcomes.