Evolutionary economic geography and growth: technological relatedness and regional branching

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Evolutionary economic geography and
growthtechnological relatedness and regional
branching

• Ron Boschma
• Utrecht University
• http// econ.geo.uu.nl/boschma/boschma.html
• DIMETIC course
• Pecs
• July 5, 2010

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structure of lecture

• technological relatedness and related variety
• 4 empirical applications in evolutionary economic
  geography
• spatial externalities related variety
• labour mobility inflow of related labour
• entrepreneurship experienced entrepreneurs
• regional diversification entry and exit of
  industries
• literature
• Frenken et al. (2007)
• Boschma, Eriksson and Lindgren (2009)
• Boschma and Wenting (2007)
• Neffke, Henning and Boschma (2009)

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1. technological relatedness and related variety

• firms differ firm-specific competences
• variety as key driver of regional growth the
  more, the better
• knowledge will spill over to other firms now and
  then, and geographical proximity is an enabling
  factor (Jane Jacobs)
• effective learning requires cognitive proximity
  between firms
• but too much cognitive proximity may be harmful
  (lock-in)
• need for technological relatedness and related
  variety to enable knowledge spillovers
• regional level might be crucial knowledge
  spillovers are often geographically bounded

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2. spatial externalities related variety

• Jacobs externalities and regional growth?
• what matter for regional growth sectors that are
  technologically related in a region
• the higher related variety in a region, the
  higher regional growth effective knowledge
  transfer requires some but not too much cognitive
  proximity between sectors in a region
• Frenken et al. (2007) for the Netherlands,
  confirmed by studies in other countries (e.g.
  Italy, Great Britain, Finland)

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2. spatial externalities related variety

• regional growth may also depend on
  extra-regional knowledge flows non-local
  linkages bring new variety into the region
• Boschma and Iammarino 2009, Economic Geography 85
  (3), 289-311 study on related variety, trade
  linkages and regional growth in Italy
• it is not inflows of extra-regional knowledge per
  se that matters for regional growth
• inflows of extra-regional knowledge related (but
  not identical) to the knowledge base in a region
  that do matter for regional growth
• this concerns new knowledge that can be
  understood and exploited by related sectors in
  the region and, thus, be transformed into
  regional growth

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3. labour mobility inflow of related labour

• labour mobility key mechanism through which
  knowledge diffuses however, no attention paid to
  relatedness
• Boschma, Eriksson and Lindgren (Journal of
  Economic Geography, vol. 9 (2), 2009) effect of
  labour mobility on plant performance through
  relatedness
• (1) at the plant level the more related the
  skill portfolio of a plant is, the higher plant
  productivity growth
• (2) through labour mobility inflow of new skills
  that are related to the knowledge base of the
  plant had a positive effect on plant performance
  (in contrast to inflows of identical skills)
• (3) extra-regional linkages labour mobility
  across regions has only a positive effect on
  plant performance when this concerns new
  employees with skills that are related (but not
  similar) to the existing set of skills at the
  plant level

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relatedness at the plant level

• human capital may matter, but . does a
  particular portfolio of skills enhance intra-firm
  learning and performance of firms?
• need to distinguish between similar, related and
  unrelated set of skills at firm level
• related set of skills (as opposed to similar and
  unrelated skill portfolios) beneficial for firm
  performance not too much cognitive proximity,
  and not too little cognitive proximity

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relatedness and labour mobility

• labour mobility may matter, but . does the
  inflow of particular types of skills enhance
  intra-firm learning and performance of plants?
• too much reliance on intra-firm skills may be
  harmful, especially when this concerns a
  portfolio of similar skills (as opposed to a
  related set of skills at the firm level) need
  for inflow of new skills to avoid lock-in
• however, absorptive capacity is required to
  understand and implement new skills at the level
  of the firm
• therefore, effect of labour mobility depends on
  the types of skills that are brought into the
  firm by new employees, and the extent to which
  these newly recruited skills add to the existing
  set of skills at the firm level
• hypothesis inflow of new skills related (but not
  similar or unrelated) to the skill base of plant
  enhances intra-firm learning and firm performance

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intra- versus inter-regional labour mobility

• labour mobility may matter, but . does the
  inflow of skills from the same region enhance
  intra-firm learning and performance of firms?
• too much reliance on intra-regional labour
  inflows may also be harmful need for
  inter-regional labour inflows to avoid lock-in
• however, this effect depends on inflows of types
  of skills
• intra-regional flows when these concern
  employees with similar skills, the problem of
  cognitive lock-in may worsen
• the more unrelated the inflow of new skills, the
  more need for intra-regional mobility, in order
  to solve problems of communication
• inter-regional labour mobility will enhance firm
  performance when these concern inflows of related
  skills

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empirical study of Sweden data

• data source micro database ASTRID that connects
  individuals (e.g. education, skills) to
  workplaces (e.g. sector, location, employees,
  value added) for the whole Swedish economy
• excluding young workers (lt25 years), part-timers
  (lt half time) and low-skilled job movers total
  of 101,093 job moves in 2001
• only workplaces that registered inflows of
  skilled employees in 2001 total of 17,098
  workplaces
• intra- versus inter-regional mobility 108 labour
  markets areas

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empirical study of Sweden variables (1)

• dependent variable labour productivity growth
  (growth value added per employee) at the plant
  level 2001-2003
• control variables plant size, urban size,
  industries and RD
• intra-plant data educational background of
  employees at 3 digit level (95 categories) as a
  proxy for skill portfolio
• inhouse similarity inverted entropy at 3 digit
  level
• inhouse related variety weighted sum of entropy
  at 3 digit level within each 2 digit class in
  2001
• inhouse unrelated variety entropy at 1 digit
  level

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empirical study of Sweden variables (2)

• inflows of skills at plant level sector-specific
  work experience of employees at 5 digit level
  (753 industries)
• inflow similar skills number of new employees
  with background in the same 5-digit sector as the
  plant
• inflow related skills number of new employees
  with background in all 5-digit sectors that share
  the same 3-digit sector as the plant, excluding
  those with a background in the same 5-digit
  sector as the plant
• inflow unrelated skills number of new employees
  with background in all other 5-digit sectors
• inflow intra-regional versus inter-regional (108
  labour market areas)

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Inflow related skillsplant inflow labour

311
311
3111
3111
31112
31113
31111
31111
31112
31113
3 digit 4 digit 5 digit
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empirical study of Sweden main results (1)

• control variables strongest effect of plant size
  (negative)
• skill portfolio plant
• educational level per se positive effect, but
• inhouse similarity not significant
• inhouse related variety strong positive effect
• inhouse unrelated variety not significant
• inflow types of skills
• labour mobility of skilled people per se
  negative effect, but .
• inflow of similar skills negative effect
• inflow of related skills strong positive effect
• inflow of unrelated skills not significant

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empirical study of Sweden main results (2)

• intra- versus inter-regional flows of types of
  skills
• intra-regional labour mobility not significant
• inter-regional labour mobility a negative effect
• (1) inflow of similar skills negative effect, no
  matter whether it concerns intra-regional or
  inter-regional labour mobility
• (2) inflow of related skills positive effect, no
  matter whether it concerns intra-regional or
  inter-regional labour mobility
• thus, inter-regional labour mobility turns from a
  negative into a positive effect when it concerns
  inflows of related skills. Inter-regional labour
  mobility has only a positive effect on
  productivity growth when it concerns new skills
  that are complementary to the plant
• (3) inflow of unrelated skills the effect of
  inflows of unrelated skills turns into a positive
  effect when it concerns intra-regional mobility,
  while inter-regional flows of unrelated skills
  have a negative impact on productivity growth

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relatedness and labour mobility research agenda

• need for dynamic analysis skill portfolio of
  plants
• to get more sophisticated measures of relatedness
• to link this study to topic of regional
  branching what kinds of labour mobility are
  required to diversify regions
• related labour
• places with related industries
• mostly local labour
• need for certain types of labour may differ
  between different stages of industry/cluster
  formation e.g. how to avoid lock-in?

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4. entrepreneurship experienced entrepreneurs

• through entrepreneurship, new industries emerge,
  but these do not start from scratch relatedness
  is again crucial
• empirical study on the spatial evolution of
  British automobile sector 1895-1968 (Boschma and
  Wenting, Industrial and Corporate Change, 2007,
  16 (2) 213-238)
• experienced entrepreneurs (with relevant
  knowledge from related industries) are crucial
  for first stage of the industry lifecycle
• related knowledge and skills are transferred from
  old sectors (engineering, cycle making, coach
  making) to the new (automobile) sector this
  increased their survival rate, in comparison to
  other types of entrepreneurs
• British regions endowed with these related
  industries also had a higher probability to
  develop the new automobile industry effective
  knowledge transfer from the old to the new
  requires relatedness regional diversification or
  branching

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5. regional diversification entry and exit of
industries

• many case studies on regional diversification or
  branching, but no systematic study
• creative destruction (Schumpeter) rise and fall
  of industries in regions
• depending on the degree of technological
  relatedness with existing industries in a region?
• two research questions
• rise of new industries do industries have a
  higher probability to enter a region when these
  are technologically related to pre-existing
  industries in a region?
• fall of existing industries do industries have a
  lower probability to exit a region when these are
  technologically related to pre-existing
  industries in a region?

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regional diversification

• long-term analysis of 70 Swedish regions
  1969-2002 (Neffke, Henning and Boschma, 2009)
• first, we needed an indicator to measure the
  degree of technological relatedness between
  industries
• co-occurrence analysis to assess inter-industry
  relatedness
• co-occurrence of products that belong to
  different industries in the portfolios of
  manufacturing plants economies of scope
• control for profitability and size of industries
• Sweden data on manufacturing plants concerning
  the products produced 1969-2002 product data
  assigned to standard industry codes (a total of
  174 6-digit industries)
• we calculated the average degree of technological
  relatedness between each pair of industries in
  the period 1969-2002

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regional diversification

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regional diversification

• in order to determine whether entries and exits
  of industries in a region are affected by the
  degree of technological relatedness with other
  industries in the region, we aggregated our data
  to 70 Swedish regions
• then, we developed an indicator to determine how
  close an industry is to all other industries in a
  region technological closeness
• defined as the number of industries in a region
  that an industry is technologically related to
  above a certain threshold

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illustration of closeness indicator

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regional diversification

• we estimated the entry probability of an industry
  in a region, and how that is affected by the
  closeness of the new industry to a regions
  portfolio
• as expected, industries that are technologically
  related to pre-existing sectors in a region have
  a higher probability to enter the region
• we also estimated the exit probability of an
  industry in a region, and how that is affected by
  its closeness to the regions portfolio
• as expected, unrelated sectors have a higher
  probability to exit the region

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entry and exit probabilities

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average industry space in Sweden 1969-2002, with
the evolution of the production structure of
Linkoping

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regional diversification

• thus, systematic evidence regions tend to
  diversify by branching into new industries that
  are related to their current industries path
  dependent process
• the same applies to the destruction process
  existing industries tend to disappear from
  regions when these are not embedded in current
  industries
• many open questions e.g. through which
  mechanisms (entrepreneurship, labour mobility,
  pipelines, etc.) do new industries connect to
  existing industries?
• what are the effects of the entry of new
  industries that bridge two technology clusters in
  a region?
• what are the regional implications of changes in
  industry space?
• does industry space differ from country to
  country?

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regional diversification

Evolution of Swedish regional production
structures with closeness measure (the number of
related industries with a RR over 0.25)