IDEAS home Printed from https://ideas.repec.org/p/wiw/wiwrsa/ersa10p937.html
   My bibliography  Save this paper

Entrepreneurship Diversification, Skill Relatedness and Regional Economic Evolution

Author

Listed:
  • Frank Neffke
  • Martin Henning

Abstract

The literature in economic geography has recently shown a growing interest in the path dependent transformation of regional economies. According to evolutionary accounts, the development of regional economies can be regarded as a result of technological branching processes, where the development of the past conditions the future opportunity space of regions. In this paper, we provide a specific explanation as to why the present structure of regional economies conditions their future development. We maintain that regions are more likely to diversify into industries that are related to their existing production portfolio, than into industries that are not related. Within such a setting, entrepreneurship can be viewed as one of the main channels for regional diversification. We specifically investigate how relatedness structures and regional entrepreneurship processes interact to provide vital understanding about the mechanisms behind regional economic evolution. A novel method, "skill relatedness", is used to define which industries are more related than others. The method defines relatedness between industries in terms of the extent to which the industries depend on similar human capital. We establish the skill-relatedness among different industries by investigating labor flows. This allows us to conceptualize the entire economy, manufacturing as well as services, as a network of industries that are connected to one another in terms of similarities in the human capital they use. In the empirical investigations, we use Swedish employer linked data on all 4.7 million individuals on the Swedish labor market 2004-2007. Using the skill-relatedness information and distinguishing between local diversification due to entrepreneurial activity, due to the expansion of local firms, or due to the expansion of non-local firms, we find that the probability that a new industry enters a Swedish region in any of these ways is strongly dependent on whether the industry is skill-related to many of the region's core industries. Local economies are most likely to add industries to their portfolios that are skill-related to their industrial cores. The results suggest that skill relatedness is a fruitful tool to investigate not only the workings of regional path dependency, but also how existing skill bases are used by diversifying entrepreneurs.

Suggested Citation

  • Frank Neffke & Martin Henning, 2011. "Entrepreneurship Diversification, Skill Relatedness and Regional Economic Evolution," ERSA conference papers ersa10p937, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa10p937
    as

    Download full text from publisher

    File URL: https://www-sre.wu.ac.at/ersa/ersaconfs/ersa10/ERSA2010finalpaper937.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Frank Neffke & Martin Henning & Ron Boschma, 2011. "How Do Regions Diversify over Time? Industry Relatedness and the Development of New Growth Paths in Regions," Economic Geography, Taylor & Francis Journals, vol. 87(3), pages 237-265, July.
    2. Ron A. Boschma & Rik Wenting, 2007. "The spatial evolution of the British automobile industry: Does location matter?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 16(2), pages 213-238, April.
    3. Koen Frenken & Ron A. Boschma, 2007. "A theoretical framework for evolutionary economic geography: industrial dynamics and urban growth as a branching process," Journal of Economic Geography, Oxford University Press, vol. 7(5), pages 635-649, September.
    4. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-131, March.
    5. Paul A. David, 2011. "Path Dependence: A Foundational Concept for Historical Social Science," Chapters, in: Peer Zumbansen & Gralf-Peter Calliess (ed.), Law, Economics and Evolutionary Theory, chapter 4, Edward Elgar Publishing.
    6. C. A. Hidalgo & B. Klinger & A. -L. Barabasi & R. Hausmann, 2007. "The Product Space Conditions the Development of Nations," Papers 0708.2090, arXiv.org.
    7. Christina Gathmann & Uta Schönberg, 2010. "How General Is Human Capital? A Task-Based Approach," Journal of Labor Economics, University of Chicago Press, vol. 28(1), pages 1-49, January.
    8. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-337, May.
    9. Ron Martin & Peter Sunley, 2006. "Path dependence and regional economic evolution," Journal of Economic Geography, Oxford University Press, vol. 6(4), pages 395-437, August.
    10. Henderson, J. Vernon, 2003. "Marshall's scale economies," Journal of Urban Economics, Elsevier, vol. 53(1), pages 1-28, January.
    11. David J. Teece & Richard Rumelt & Giovanni Dosi & Sidney Winter, 2000. "Understanding Corporate Coherence: Theory and Evidence," Chapters, in: Innovation, Organization and Economic Dynamics, chapter 9, pages 264-293, Edward Elgar Publishing.
    12. Ron Martin, 2010. "Roepke Lecture in Economic Geography—Rethinking Regional Path Dependence: Beyond Lock-in to Evolution," Economic Geography, Taylor & Francis Journals, vol. 86(1), pages 1-27, January.
    13. Frank Neffke & Martin Svensson Henning, 2009. "Skill-relatedness and firm diversification," Papers on Economics and Evolution 2009-06, Philipps University Marburg, Department of Geography, revised Oct 2010.
    14. Koen Frenken & Frank Van Oort & Thijs Verburg, 2007. "Related Variety, Unrelated Variety and Regional Economic Growth," Regional Studies, Taylor & Francis Journals, vol. 41(5), pages 685-697.
    15. Ron Boschma & Koen Frenken, 2009. "Technological relatedness and regional branching," Papers in Evolutionary Economic Geography (PEEG) 0907, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jun 2009.
    16. Ingram, Beth F. & Neumann, George R., 2006. "The returns to skill," Labour Economics, Elsevier, vol. 13(1), pages 35-59, February.
    17. Maxim Poletaev & Chris Robinson, 2008. "Human Capital Specificity: Evidence from the Dictionary of Occupational Titles and Displaced Worker Surveys, 1984-2000," Journal of Labor Economics, University of Chicago Press, vol. 26(3), pages 387-420, July.
    18. Frank Neffke & Martin Svensson Henning & Ron Boschma, 2008. "Surviving in agglomerations: Plant evolution and the changing benefits of the local environment," Papers in Evolutionary Economic Geography (PEEG) 0820, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Dec 2008.
    19. Edward L. Glaeser, 2005. "Reinventing Boston: 1630--2003," Journal of Economic Geography, Oxford University Press, vol. 5(2), pages 119-153, April.
    20. David J. Bryce & Sidney G. Winter, 2009. "A General Interindustry Relatedness Index," Management Science, INFORMS, vol. 55(9), pages 1570-1585, September.
    21. Marion Eich-Born & Robert Hassink, 2005. "On the Battle between Shipbuilding Regions in Germany and South Korea," Environment and Planning A, , vol. 37(4), pages 635-656, April.
    22. Andrea Bassanini & Giovanni Dosi, 1999. "When and How Chance and Human Will Can Twist the Arms of Clio," LEM Papers Series 1999/05, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thomas Brekke, 2015. "Entrepreneurship and path dependency in regional development," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 27(3-4), pages 202-218, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martin Henning & Erik Stam & Rik Wenting, 2013. "Path Dependence Research in Regional Economic Development: Cacophony or Knowledge Accumulation?," Regional Studies, Taylor & Francis Journals, vol. 47(8), pages 1348-1362, September.
    2. Matthias Firgo & Peter Mayerhofer, 2015. "Wissens-Spillovers und regionale Entwicklung - welche strukturpolitische Ausrichtung optimiert des Wachstum?," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 144, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    3. Yang Li & Frank Neffke, 2022. "Relatedness in regional development: in search of the right specification," Papers in Evolutionary Economic Geography (PEEG) 2208, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Apr 2022.
    4. Shengjun Zhu & Canfei He & Yi Zhou, 2015. "How to jump further? Path dependent and path breaking in an uneven industry space," Papers in Evolutionary Economic Geography (PEEG) 1524, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jul 2015.
    5. Celeste Varum & Carmen Guimarães & José Martinho Oliveira & Ana Martins, 2020. "Industrial dynamics in the context of a region’s international competitiveness," Local Economy, London South Bank University, vol. 35(3), pages 209-229, May.
    6. Li, Yang & Neffke, Frank M.H., 2024. "Evaluating the principle of relatedness: Estimation, drivers and implications for policy," Research Policy, Elsevier, vol. 53(3).
    7. Alessia Lo Turco & Daniela Maggioni, 2016. "On firms’ product space evolution: the role of firm and local product relatedness," Journal of Economic Geography, Oxford University Press, vol. 16(5), pages 975-1006.
    8. Ron Boschma, 2021. "Designing Smart Specialization Policy: relatedness, unrelatedness, or what?," Papers in Evolutionary Economic Geography (PEEG) 2128, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Sep 2021.
    9. Ron Boschma & Ron Martin, 2010. "The Aims and Scope of Evolutionary Economic Geography," Chapters, in: Ron Boschma & Ron Martin (ed.), The Handbook of Evolutionary Economic Geography, chapter 1, Edward Elgar Publishing.
    10. Neffke, Frank M.H. & Otto, Anne & Weyh, Antje, 2017. "Inter-industry labor flows," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 275-292.
    11. Jürgen Essletzbichler, 2013. "Relatedness, industrial branching and technological cohesion in U.S. metropolitan areas," Papers in Evolutionary Economic Geography (PEEG) 1307, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised May 2013.
    12. Matthias Firgo & Peter Mayerhofer, 2015. "Wissensintensive Unternehmensdienste, Wissens-Spillovers und regionales Wachstum. Teilprojekt 1: Wissens-Spillovers und regionale Entwicklung – Welche strukturpolitische Ausrichtung optimiert das Wach," WIFO Studies, WIFO, number 58342.
    13. Ron Boschma & Koen Frenken, 2011. "The emerging empirics of evolutionary economic geography," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 295-307, March.
    14. Frank Neffke & Martin Svensson Henning, 2009. "Skill-relatedness and firm diversification," Papers on Economics and Evolution 2009-06, Philipps University Marburg, Department of Geography, revised Oct 2010.
    15. Giulio Cainelli & Donato Iacobucci, 2012. "Agglomeration, Related Variety, and Vertical Integration," Economic Geography, Clark University, vol. 88(3), pages 255-277, July.
    16. Koen Frenken & Ron A. Boschma, 2012. "Economic Development as a Branching Process," Chapters, in: Guido Buenstorf (ed.), Evolution, Organization and Economic Behavior, chapter 9, Edward Elgar Publishing.
    17. Ron Boschma & Pierre-Alexandre Balland & Dieter Franz Kogler, 2015. "Relatedness and technological change in cities: the rise and fall of technological knowledge in US metropolitan areas from 1981 to 2010," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 24(1), pages 223-250.
    18. Ron Boschma & Asier Minondo & Mikel Navarro, 2013. "The Emergence of New Industries at the Regional Level in S pain: A Proximity Approach Based on Product Relatedness," Economic Geography, Taylor & Francis Journals, vol. 89(1), pages 29-51, January.
    19. Canfei He & Yan Yan & David Rigby, 2015. "Regional Industrial Evolution in China: Path Dependence or Path Creation?," Papers in Evolutionary Economic Geography (PEEG) 1520, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jul 2015.
    20. Zsolt Csáfordi & László Lőrincz & Balázs Lengyel & Károly Miklós Kiss, 2020. "Productivity spillovers through labor flows: productivity gap, multinational experience and industry relatedness," The Journal of Technology Transfer, Springer, vol. 45(1), pages 86-121, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa10p937. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gunther Maier (email available below). General contact details of provider: http://www.ersa.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.