1. An evolutionary perspective on regional growth Ron Boschma Department of Economic Geography Utrecht University http://econ.geo.uu.nl/boschma/boschma.html DIMETIC course July 3, 2007

2. Structure of lecture spin-off dynamics and regional development agglomeration economies and regional development British automobile case: related variety related variety and regional growth: Italian case

3. Evolutionary perspective in economic geography spatial distribution of firm-specific routines in a population over time: competition, innovation and imitation -how new routines emerge and diffuse in space when a new sector develops (variety, selection, retention) -through which mechanisms inter-firm learning takes place two mechanisms of inter-firm learning: -spin-off dynamics: regional phenomenon (near parent organization) -agglomeration economies: geographically localised knowledge spillovers (not available outside region)

4. Spin-off dynamics spin-off process: growth and spatial concentration of industry (Silicon Valley, etc.) two evolutionary principles -Polya urn process (Arthur): probability of new spin-off in region is equal to the number of incumbent firms in region -spin-off process as transfer mechanism of routines within a region (Klepper) - spin-offs inherit routines from parent firms - successful parents generate more successful spin-offs (‘success breeds success’) other mechanisms of local knowledge transfers?

5. Agglomeration economies advantages that can be exploited by firms when located together two evolutionary principles -dynamic view on agglomeration economies: they come into being as a new industry grows and concentrates in a region (Arthur): how relevant knowledge spillovers become increasingly available in those regions that, by chance, have generated most entrants at the first stage of the life cycle of a new industry (self-reinforcing processes) -agglomeration economies as mechanism of knowledge diffusion within a region - co-location (monitoring/observing) - local networks (through which knowledge circulates in a region) ‘spin-off dynamics’ and ‘agglomerations economies’ provide different evolutionary explanations for same phenomena

6. Spatial analysis of the British automobile industry 1895-1968 Boschma and Wenting (2007), ICC, vol. 16, no. 2, pp. 213-238 own data collection -Culshaw and Horrobin (1974); Georgano (1968) -population dynamics: entries, exits (incl. mergers and acquisitions), age, location, time of entry, pre-entry background of entrepreneurs evolution of market structure of British automobile industry -1895-1921: rapid growth -1922-1932: shake-out -1933-1968: consolidation spatial concentration: Coventry Britain’s motor city

7. Number of automobile producers, entrants and exits in Great Britain, 1895-1968

8. Spin-off dynamics and/or agglomeration economies Cox regressions to explain survival or hazard rates of automobile firms dependent variable: age of entrant (1) agglomeration economies: -LOCREL: localization economies in related industries (regional employment in coach and cycle making industries) -URBECON: urbanization economies (regional population density) -LOCECON: local competition or localization economies (number of automobile firms in region): positive or negative effect?

9. (2) time of entry -ENTR1: cohort 1 (1895-1906) -ENTR2: cohort 2 (1907-1919) (3) pre-entry background of entrepreneurs -EXPEF: experienced firms (related industries) -SPINOF: spin-offs (automobiles) -PARENTS: spin-offs from successful parents (4) dynamic perspective: stages of life cycle industry -1 st stage: LOCREL and EXPEF (related industries) -2 nd stage: LOCECON and SPINOF (and PARENTS)

11. Conclusions British automobile case locations matter -agglomerations with related activities: effective transfer of knowledge requires related variety -specialized agglomerations: negative impact on performance due to strong local competition pre-entry backgrounds matter -the more close the routines are related to automobiles (spin-offs and experienced entrepreneurs), the better the new entrants perform -especially when they originate from parents with successful parents need to distinguish between phases life-cycle of industry -1 st stage: experience in related activities (entrepreneurs and location), no competition effect -2 nd stage: experience in automobiles (entrepreneurs, but decreasing importance of location), strong competition effect (negative)

12. Survival curves by pre-entry entrepreneurial background

13. Related variety and regional growth: Italian case Boschma and Iammarino (2007) debate on whether local specialisation (localisation economies) or diversification (Jacobs’ externalities) induce knowledge spillovers and regional economic growth (Glaeser et al., 1992; Henderson et al., 1995) meaning of Jacobs’ externalities unclear: distinction between related and unrelated variety (Frenken et al., 2007) importance of diversity and relatedness of extra-regional linkages for regional growth: may bring new and related variety into the region to assess their impact on economic growth of Italian provinces 1995- 2003

14. Related variety and regional growth: theoretical framework Jacobs’ externalities concept problematic two effects (Frenken et al. 2007): - knowledge spillover effect: requires related variety: some but not too much cognitive proximity - portfolio effect: unrelated variety absorbs sector-specific shocks related variety = sectors related in terms of shared or complementary competences

15. Related variety and regional growth: theoretical framework extra-regional linkages: to avoid lock-in too much reliance on regional knowledge may be harmful: need for global pipelines (e.g. Bathelt et al. 2004) however, access to non-regional knowledge not sufficient: local absorptive capacity is required to understand and transform external knowledge into economic growth related variety crucial: inflows of extra-regional knowledge related (but not quite similar) to existing knowledge in region particularly enhance interactive learning and regional growth

16. Related variety and regional growth: analytical framework dependent variables: regional growth 1995-2003 at the NUTS 3 level (103 provinces) –employment growth –value added growth –labour productivity growth

17. Related variety and regional growth: analytical framework independent variables: –variety: export data by sector at 3 digit level (121 sectors): entropy measure at 3-digit-level –related variety: weighted sum of entropy at 3 digit level within each 2 digit class –unrelated variety: entropy at 1 digit level

18. Regional export profile 1 digit 2 digit 3 digit 3 3132 311 312313314321322 4 414243 411421422431432433

19. Related variety and regional growth: analytical framework independent variables (cont.): –import variety: import data by sector at 3 digit level (121 sectors): entropy measure at 3-digit-level –related import variety: sums of products of relative size of export sector i and related import (entropy from other sectors at 3 digit except i within each 2 digit class) –import similarity: sums of products of the absolute sizes of a 3-digit industry’s exports and imports –dummies for Italian macro-regions (NORTHWES, NORTHEAS, CENTRE, SOUTH)

20. Regional Export ProfileRegional Import Profile 1 digit 2 digit 3 digit 3 31 311312313 3 31 312313311

21. Results employment growth 1995-2003 value added growth 1995-2003 productivity growth 1995-2003 Variety-1.514-1.725-0.356 Related variety3.58411.680**7.224* Unrelated variety5.9478.8182.242 Import variety-1.409-0.4861.058 Rel import variety3.290**0.539-3.462** Import similarity0.126-0.585***-0.695*** Northwest0.618-9.068***-7.457*** Northeast0.710-6.952***-5.502*** Centre2.677*-3.441*-4.622*** R-square0.1710.2940.368 F2.1374.3096.015 excluded variable South n=103 *p < 0.10, **p <0.05, ***p<0.01

22. Results employment growth 1995-2003 value added growth 1995-2003 productivity growth 1995-2003 Variety-1.514-1.725-0.356 Related variety3.58411.680**7.224* Unrelated variety5.9478.8182.242 Import variety-1.409-0.4861.058 Rel import variety3.290**0.539-3.462** Import similarity0.126-0.585***-0.695*** Northwest0.618-9.068***-7.457*** Northeast0.710-6.952***-5.502*** Centre2.677*-3.441*-4.622*** R-square0.1710.2940.368 F2.1374.3096.015 excluded variable South n=103 *p < 0.10, **p <0.05, ***p<0.01

23. Results employment growth 1995-2003 value added growth 1995-2003 productivity growth 1995-2003 Variety-1.514-1.725-0.356 Related variety3.58411.680**7.224* Unrelated variety5.9478.8182.242 Import variety-1.409-0.4861.058 Rel import variety3.290**0.539-3.462** Import similarity0.126-0.585***-0.695*** Northwest0.618-9.068***-7.457*** Northeast0.710-6.952***-5.502*** Centre2.677*-3.441*-4.622*** R-square0.1710.2940.368 F2.1374.3096.015 excluded variable South n=103 *p < 0.10, **p <0.05, ***p<0.01

24. Related variety and regional growth: research challenges check whether the impact of related variety differs within groups of industries based on advanced technological systems need for case studies at the regional level: related variety prerequisite for long-term growth? non-local linkages among Italian provinces (e.g. by including neighbouring effects based on Moran statistics)