Geography and growth: technological relatedness and regional branching Ron Boschma Utrecht University econ.geo.uu.nl/boschma/boschma.html DIMETIC course Pecs June 30, 2009

structure of lecture what is technological relatedness? what might be the main mechanisms? why is there a local bias?: regional branching two empirical studies -spinoffs: experienced entrepreneurs -labour mobility: inflow of related labour Boschma and Frenken (2009) in: Bathelt et al. forthcoming

what is technological relatedness? firms differ: firm-specific competences variety as key driver of regional growth: the more, the better but: knowledge will spill over to other firms and sectors now and then firms need absorptive capacity (same for regions: regional knowledge base) but too much cognitive proximity may also be harmful for innovation (lock-in) need for relatedness to enable knowledge spillovers, and to diversify firms and regional economies

relatedness and regional branching case studies of new sectors that expand on existing knowledge base, renewing and broadening the regional economy Emilia Romagna region: generic knowledge base in engineering laid the foundations of a broad range of new sectors during the postwar period systematic evidence of regional branching: countries and regions tend to expand and diversify into sectors that are closely related to their existing activities (Hausmann and Klinger, 2007; Hidalgo et al., 2007) related sectors tend to enter regions, while unrelated sectors tend to exit regions over time (Neffke et al. 2009): industrial profile of regions may have some predictive power over time

mechanisms through which relatedness operates crucial question: through which mechanisms relatedness shows its economic relevance, making regional economies diversify into new directions while building on related assets 4 mechanisms: (1) spinoff dynamics (2) labour mobility (3) network linkages (4) diversification of firms

mechanisms: regional branching transfer mechanisms connecting the old to the new tend to have a local bias: branching process occurs at regional level (1)spinoffs: experienced entrepreneurs locate near their parent (2)related labor mobility: most employees change jobs in same region (3)related network actors: geographical proximity driver of network formation, but also other forms of proximity (social, institutional, etc.) that tend to have a local bias (4)related diversification of firms: occurs mainly within existing plants at the same location

spinoffs: experienced entrepreneurs through entrepreneurship, new industries emerge, but these do not start from scratch: relatedness is crucial empirical study on the spatial evolution of British automobile sector (Boschma and Wenting, Industrial and Corporate Change, 2007, 16 (2): ): -experienced entrepreneurship with relevant knowledge from related industries are crucial during the first stage of the industry lifecycle: they transferred related knowledge and skills from old sectors (engineering, cycle and coach making) to the new automobile sector: even determined their survival -British regions endowed with these related industries had a higher probability to develop the new automobile industry: effective transfer of knowledge from old to new requires relatedness: regional diversification or branching

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 its productivity growth -(2) through labour mobility: inflow of new skills that are related (but not similar) to the knowledge base of the plant has a positive effect on plant performance -(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

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 portfolio’s) beneficial for firm performance: not too much cognitive proximity, and not too little cognitive proximity

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

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

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 (<25 years), part-timers (< 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

empirical study of Sweden: variables (1) dependent variable: labour productivity growth (growth value added per employee) at the plant level control variables: plant size, urban size, industries and R&D 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 inhouse unrelated variety: entropy at 1 digit level

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)

Inflow related skills plantinflow labour 3 digit 4 digit 5 digit

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

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

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: (1) related labour (2) places with related industries (3) 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?