Papers in Evolutionary Economic Geography

February 11, 2019

# 19.07 Cluster externalities, firm capabilities, and the recessionary shock: How the macro-to-micro-transition shapes firm performance during stable times and times of crisis

Christian Hundt & Linus Holtermann & Jonas Steeger & Johannes Bersch


Abstract: In this paper, we examine the macro-to-micro-transition of cluster externalities to firms and how it is affected by the macroeconomic instability caused by the recessionary shock of 2008/2009. Using data from 16,166 manufacturing and business services firms nested in 390 German regions, we employ within-firm regression techniques to estimate the impact of cross-level interactions between firm- and cluster-level determinants on phase-related differences in firm performance between a pre-crisis (2004-2007) and a crisis period (2009-2011).

The empirical results validate the existence of a macro-to-micro-transition that evolves best in the case of broad firm-level capabilities and variety-driven externalities. Furthermore, the results indicate that the transition strongly depends on the macroeconomic cycle. While the transition particularly benefits from a stable macroeconomic environment (2004-2007), its mechanisms are interrupted when being exposed to economicturmoil (2009-2011). Yet, the crisis-induced interruption of the transition is mainly restricted to the national recession in 2009. As soon as the macroeconomic pressure diminishes (2010-2011), we observe a reversion of the transmission mechanisms to the pre-crisis level.

Our study contributes to the existing literature by corroborating previous findings that the economic performance of firms depends on a working macro-to-micro transition of external resources, which presupposes sufficient cluster externalities and adequate firm-level combinative capabilities.In contrast to previous studies on this topic, the transition mechanism is not modeled as time-invariant. Instead, it is coupled tothe prevailing macroeconomic regime.


October 10, 2018

# 18.36 Related variety, unrelated variety and the novelty content of firm innovation in urban and non-urban locations

Filed under: 2018 — Tags: , , , , , — T.Broekel @ 4:36 pm

Marte C.W. Solheim and Ron Boschma and Sverre Herstad


Abstract: In this paper, we investigate whether the composition of experience-based knowledge accumulated by firms in urban and rural locations is reflected in the novelty content of their innovations. Looking at the manufacturing industry, and using Norwegian Linked Employer- Employee register data (LEED) merged with Community Innovation Survey (CIS) data, we find that unrelated experience variety within firms increases the probability of radical innovation, independently of firms’ location, whereas related variety increases the probability of incremental innovation in large-city regions. These results demonstrate that innovation capacity cannot be understood from the single perspective of R&D efforts and strategy as it also depends on experiences accumulated in ‘entire organizations’ and the locations in which accumulation occurs. Moreover, they suggest that for manufacturing firms, urban locations are not hot spot for radical change. Instead, they support incremental innovative activities by facilitating effective sharing of knowledge between related sectors.

September 11, 2018

# 18.34 What kind of related variety for long-term regional growth?

Filed under: 2018 — Tags: , , , , , — T.Broekel @ 5:45 am

Kadri Kuusk & Mikhail Martynovich


Abstract: We investigate the evolution of relatedness linkages between Swedish industries during five sub-periods between 1991 and 2010. Distinguishing between the stable ties (present in all sub- periods) and non-stable ties (emerging, disappearing, etc), we demonstrate that the relatedness linkages change considerably over time. Furthermore, we show that the changes in the relatedness matrix matter for the impact of related variety on regional employment growth. We argue, therefore, that the relatedness linkages have a ‘best before date’ and that the choice of what relatedness indicator to apply and how deserves more consideration than it is usually given.

May 31, 2018

# 18.23 Does related variety affect regional resilience? New evidence from Italy

Filed under: 2018 — Tags: , , , — T.Broekel @ 3:45 pm

Giulio Cainelli & Roberto Ganau & Marco Modica


Abstract: Although several contributions have studied the effect of related variety on the economic performance of firms and regions, its influence on regional resilience – that is, regions’ capacity to adapt to external shocks – has received little attention. This paper contributes to this debate by analysing empirically the relationship between related variety and regional resilience at the Italian Local Labour Market (LLM) level. The analysis adopts the definition of regional resilience developed by Martin (2012), and employs spatial econometric techniques − besides standard non-spatial models − to analyse the role played by related variety as a short-run shock absorber with respect to the 2008 Great Recession. The results obtained from the estimation of Spatial Error Models suggest that LLMs characterised by a higher level of related variety have shown a higher capacity to adapt to an external shock, that is, the Great Recession. This evidence is confirmed with respect to two different short-run time horizons, the one-year period 2012-2013 and the three-year period 2010-2013.

May 27, 2016

# 16.12 Related variety, ownership, and firm dynamics in transition economies: the case of Hungarian city regions 1996-2012

Izabella Szakálné Kanóa, Balázs Lengyel, Zoltán Elekes, Imre Lengyel


We investigate the effect of related variety on the entry and exit patterns of domestic and foreign firms in Hungarian city regions from 1996-2012. In order to characterize the archetypes of interaction between domestic and foreign firms, we introduce three alternative models to calculate the related variety. The best fit is provided by the model, in which no interaction among foreign and domestic firms is presumed. Related variety in the foreign subset tends to accelerate firm entry and decelerate firm exit in a much earlier stage of economic transition than related variety across domestic firms.

# 16.11 The Variety of Related Variety Studies: Opening the Black Box of Technological Relatedness via Analysis of Inter-firm R&D Cooperative Projects

Filed under: 2016 — Tags: , , , — mattehartog @ 12:32 pm

Jiří Blažek, David Marek, Viktor Květoň


The aim of this article is twofold. First, on the basis of a review of recent literature on related variety, it shows that there are not only differences between ex-ante and ex-post conceptualisations of relatedness, but also several striking methodological differences within this research stream. Therefore, it is argued, the growing number of studies on relatedness using different conceptualisations and methodologies can result in a “hollowing-out” of the original explanatory power of the concept. Second, this paper aims to open the black box of relatedness among industries by exploring one of the main channels through which the effects of relatedness can operate by simultaneous application of both ex-ante and ex-post approaches to measuring relatedness. In particular, joint R&D projects among companies represent a vigorous mechanism of knowledge exchange and mutual learning, but, as of yet, these studies have not been systematically linked to the concept of related variety. Our results prove that R&D collaboration according to technological distance is indeed far from random, but, contrary to our expectation, the results show that R&D collaboration occurs most frequently among unrelated companies. Thus, the search for partners in R&D projects seems to be driven by the novelty of knowledge rather than by probabilities of its comprehension. Conceptually, these findings suggest that in reality there might be various processes that require vastly different level of relatedness. This could lead to important policy implications as overreliance upon support for related industries might be misleading.

April 30, 2016

# 16.08 Resilience in the European Union: the effect of the 2008 crisis on the ability of regions in Europe to develop new industrial specializations

Jing Xiao, Ron Boschma, Martin Andersson


This paper adopts an evolutionary framework to the study of industrial resilience. We present a study on European regions and assess the extent to which the capacity of their economies to develop new industrial specializations is affected by the global economic crisis of 2008. We compare levels of industry entry in European regions in the period 2004-2008 and 2008-2012, i.e. before and after a major economic disturbance. Resilient regions are defined as regions that show high entry levels or even increase their entry levels after the shock. Industrial relatedness and population density exhibit a positive effect on regional resilience, especially on the entry of knowledge-intensive industries after the shock, while related variety per se shows no effect on regions being resilient or not.

March 7, 2016

# 16.04 (Un)Related Variety and Employment Growth at the Sub-Regional Level

Filed under: 2016 — Tags: , , , , — mattehartog @ 7:47 pm

Matthias Firgo and Peter Mayerhofer


Empirical results on the link between growth and diversity in (un)related industries proved to be highly dependent on the specific regional and temporal context. Making use of highly disaggregated employment data at the sub-regional level, we find that higher employment growth in Austria is mainly linked to unrelated variety. However, in-depth analyses by sectors and regional regimes illustrate substantial heterogeneity in the results, mainly driven by the service sector and by a large number of relatively small regions. Thus, our results argue against structural policy conclusions based on assessments across all economic sectors or different types of regions.

June 9, 2015

# 15.19 Cross-specialization: A New Perspective on Industry Policy

Filed under: 2015 — Tags: , , , , — mattehartog @ 9:56 am

Matthijs J. Janssen


In this paper we discuss how an economies’ established stronghold industries can form a basis for sustaining competiveness. As changing market circumstances demand strongholds to stay adaptive, their knowledge bases need to be enriched with knowledge that is uncommon to the industry itself. Inspired by insights from evolutionary economic geography, we argue why rather than (only) supporting related variety, policy makers should ‘cross-specialize’ by creating linkages between strong but unrelated industries. Experimentation based on bridging rich knowledge bases provides important opportunities for breakthrough innovation and, ultimately, economic diversification. Policy makers can facilitate uncommon interactions by creating various kinds of platform-like interfaces. One way to determine what technologies and themes are suitable in this regard is by taking a close look at cross-over industries. As these cross-over industries consist of parties able to communicate with both of the unrelated strongholds, they are highly relevant for policy interventions aimed at closing structural holes in the industry space. Looking at the case of the Dutch Topsectors, we describe how cross-over industries can be identified. We use skill-relatedness and employment data to construct the Dutch industry space, and apply network analytics for calculating cross-over centrality measures. We conclude by discussing research and policy implications.

June 1, 2015

# 15.18 Evolutionary Economic Geography

Ron Boschma and Koen Frenken


The chapter gives a brief overview of the most recent literature on Evolutionary Economic Geography (EEG). We describe how EEG has provided new and additional insights on a number of topics that belong to the core of the economic geography discipline: why do industries concentrate in space, how do clusters operate and evolve, how are innovation networks structured in space and how do they evolve over time, what types of agglomeration externalities induce urban and regional growth, how do regions diversify, and how do institutions and institutional change matter for the development of new growth paths in regions.

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