# 16.26 Agglomeration economies: the heterogeneous contribution of human capital and value chains

Dario Diodato, Frank Neffke, Neave O’Clery

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We document the heterogeneity across sectors in the impact labor and input-output links have on industry agglomeration. Exploiting the available degrees of freedom in coagglomeration patterns, we estimate the industry-specific benefits of sharing labor needs and supply links with local firms. On aggregate, coagglomeration patterns of services are at least as strongly driven by input-output linkages as those of manufacturing, whereas labor linkages are much more potent drivers of coagglomeration in services than in manufacturing. Moreover, the degree to which labor and input-output linkages are reflected in an industry’s coagglomeration patterns is relevant for predicting patterns of city-industry employment growth.

# 16.25 Risk-taking, skill diversity, and the quality of human capital: how insurance affects innovation

Andrea Filippetti, Frederick Guy

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We argue that human capital does a better job of fostering innovation when an economy has a diverse portfolio of specialist skills to draw on. While such a diverse portfolio is beneficial for a country, it includes many individual skill packages that are subject to considerable labour market risk. In the absence of strong income insurance (job security or unemployment insurance), the flight to safety in human capital investments will produce a national skill portfolio which is poorly diversified and less conducive to innovation.
Using country-level data for 25 OECD countries from 1985 to 2009, we find evidence that income insurance raises the marginal effect of human capital on innovation, with the latter measured by patenting. At the same time, we find a direct negative effect of insurance on patenting; at low-medium levels of human capital, the direct negative effect more than offsets the positive indirect effect, while at high levels of human capital the indirect positive effect dominates. We draw implications for income insurance and education policy.

# 16.24 Measuring how the knowledge space shapes the technological progress of European regions

Silvia Rita Sedita, Ivan De Noni, Roberta Apa, Luigi Orsi

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This work aims to investigate the features of the regional knowledge space that are more likely to be conducive to technological progress (TP), either in terms of dimension and relevance. We acknowledge the importance of knowledge assets for new knowledge production and we identify more or less path dependent processes that allow a region to be more competitive in terms of innovation potential. In particular, adopting an evolutionary view of regional development, we consider a regional knowledge space as composed of a knowledge base (KB) and a selection environment (SE), which differently affect the technological progress of the region. Empirical evidence come from a quantitative analysis of 269 European regions, whose data are included in the RegPat database. Results show that the variety of KB impacts positively on the technological progress at large. The variety of SE impacts positively only on the technological progress in terms of relevance, while the size of the SE impacts positively only on the quantitative side of the technological progress. Unrelated variety of KB and SE affects technological progress more widely than their correspondent related variety indicators.

# 16.23 Place, platform, and knowledge co-production dynamics: Evidence from makers and FabLab

Raphaël Suire

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FabLabs (fabrication laboratories) have become popular but the academic literature on this entrepreneurial phenomenon is scant. This paper provides some insight into the sources of Fablab performance based on original data on the characteristics and interactions between (n = 48) FabLabs and their ecosystem. A FabLab is a geographically located, intermediary platform which reduces the matching and searching costs to stakeholders involved in an entrepreneurial endeavor. We find that a FabLab is less productive if disconnected from its ecosystem. Innovation production is highest when the FabLab acts as a platform allowing interactions between small explorative firms, and large exploitative firms. Its innovation remains explorative if the interaction involves only small explorative firms. Our study has some implications for the management of FabLabs and their ambiguous impact on the overall innovation ecosystem in relation to resilience, smart specialization and diversification.

# 16.22 Can we learn anything from economic geography proper? Yes, we can!

Robert Hassink, Huiwen Gong, Fabian Faller

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Since the launch of new economic geography by Paul Krugman there have been intensive debates between geographical economists and economic geographers both about the ways they differ from each other as well as about potential complementarities. Overman’s (2004) provocative article, titled “can we learning anything from economic geography proper?” has been not very helpful in developing the latter. By responding to his core critiques we provide a much more positive answer to his question, do justice to economic geography and show more complementarities between geographical economics and economic geography.

# 16.21 Related variety and economic development:a literature review

Jeroen Content, Koen Frenken

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Since the introduction of the related variety in 2007, a number of studies have been undertaken to analyze the effect of related variety on economic development. Our review of 21 studies makes clear that most studies find support for the initial hypothesis that related variety supports employment growth, though some studies suggest that the growth effects of related variety may be specific to knowledge-intensive sectors only. From the review, we list a number of further research questions regarding: methodology, the role of unrelated variety, different forms of relatedness, and the effect of related variety on knowledge production and entrepreneurship.

# 16.20 Related trade linkages, foreign firms, and employment growth in less developed regions

Zoltán Elekes, Balázs Lengyel

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How does international trade of foreign-owned companies contribute to regional economic growth in less developed regions? Are there knowledge externalities at play between co-located trade activities of foreign and domestic firms? We address the above questions by analysing the impact of technological relatedness of regional import and export activities in manufacturing, performed by foreign and domestic companies on regional employment growth in Hungary between 2000 and 2012. Results suggest that the related variety of export activities and the relatedness between import and export products benefits regional employment growth in general, while the host economy benefits more from the technological relatedness of domestic firms’ trade activities, rather than relatedness to or between foreign firms’ activities. Employment of domestic firms benefits from the trade activity of co-located foreign firms only if it is in the same product class.

# 16.19 A Complexity-Theoretic Perspective on Innovation Policy

Koen Frenken

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It is argued that innovation policy based on notions of market failure or system failure is too limited in the context of current societal challenges. I propose a third, complexity-theoretic approach. This approach starts from the observation that most innovations are related to existing activities, and that policy’s additionality is highest for unrelated diversification. To trigger unrelated diversification into activities that contribute to solving societal challenges, government’s main task is to organize the process of demand articulation. This process leads to clear and manageable societal objectives  that effectively guide a temporary collation of actors to develop solutions bottom-up. The combination of a broad coalition, a clear objective and tentative governance are the means to cope with the inherent complexity of modern-day innovation.

# 16.18 Is there trickle-down from tech? Poverty, employment and the high-technology multiplier in US cities

Neil Lee, Andrés Rodríguez-Pose

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High-technology industries are seen as important in helping urban economies thrive, but at the same time they are often considered as potential drivers of relative poverty and social exclusion. However, little research has assessed how high-tech affects urban poverty and the wages of workers at the bottom of the pyramid. This paper addresses this gap in the literature and investigates the relationship between employment in high-tech industries, poverty and the labor market for non-degree educated workers using a panel of 295 Metropolitan Statistical Areas (MSAs) in the United States between 2005 and 2011. The results of the analysis show no real impact of the presence of high-technology industries on poverty and, especially, extreme poverty. Yet there is strong evidence that tech-employment increases wages for non-degree educated workers and, to a lesser extent, employment for those without degrees. These results suggest that while tech employment has some role in improving welfare for non-degree educated workers, tech-employment alone is not enough to reduce poverty.

# 16.17 Towards a theory of regional diversification

Ron Boschma, Lars Coenen, Koen Frenken, Bernhard Truffer

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This paper aims to develop a theoretical framework on regional diversification. Combining insights from the evolutionary economic geography literature and the transition literature, we argue that a theory of regional diversification should build on the current understanding of conditions for related diversification but additionally start to tackle processes of unrelated diversification by accounting for (1) the role of agency (institutional entrepreneurship) and the dynamic interplay between agency and context; (2) enabling and constraining factors at various spatial scales. We propose a typology of four regional diversification processes by cross-tabulating related versus unrelated diversification with niche creation versus regime adoption.