Paweł Churski, Katarzyna Kopczewska, Artur Ochojski, Adam Polko TOWARDS THE INTERPRETATION OF REGIONAL SPECIALISATION: ECONOMY AND POLICY PERSPECTIVES Paweł Churski, Katarzyna Kopczewska, Artur Ochojski, Adam Polko Scientific project financed by Polish National Center of Science (www.ncn.gov.pl) titled “Statistical models in identification of regional specialization, including the component of spatial heterogeneity” (call OPUS 6, contract no UMO-2013/11/B/HS4/01098).

Variety of defining regional specialisation in theory and practice Content Variety of defining regional specialisation in theory and practice Regional specialisation as a dynamic process The mechanisms of regional specialisation Descrpitive and normative apporach: Questions of economics and policy Case study

Variety of defining regional specialisation in theory and practice #1 Sectoral concetration sectoral distribution of employment in the region Sectoral concentraion is measured using cluster based methods. Geographical concentration regional distribution of employment in the industry Geographical concetrnaion is measured using distance based nethods. Agglomeration spatial density of location of firms inside the region agglomeration is measured using distance based methods. Specialisation based on a degree comparison of dominance/clustering in an economic activity, in relation to the adopted standard reference, Specialisation is measured using cluster based methods.

Variety of defining regional specialisation in theory and practice #2 Territory A Territory B Territory C Territory D … Total Industry 1 emp(ij) Ʃemp(indA) Industry 2 Ʃemp(indB) Industry 3 Ʃemp(indC) Industry 4 Ʃemp(indD) Ʃemp(terrA) Ʃemp(terrB) Ʃemp(terrC) Ʃemp(terrD) ƩƩemp GEOGRAPHICAL CONCENTRATION SECTORAL CONCENTRATION

Review of theories explaining specialisation at national and regional level Models and Authors Driven forces of specialisation Outcomes TRADITIONAL TRADE THEORY Smith (1776) absolute advantage Inter-industry specialisation due to differences in production costs Ricardo (1821) comparative advantage Inter-industry specialisation due to differences in the productivity of labour Heckscher-Ohlin model Inter-industry specialisation due to differences in factor endowments and relative abundance of factors of production Technology-gap model (Posner 1961) Intra-industry specialisation due to technology differences (technology-gap) between countries Product cycle models (Vernon 1966, Hirsch 1967) Intra-industry specialisation due to different stages in the product life cycle NEW TRADE THEORY Krugman (1978); Krugman (1980); Helpman & Krugman (1985) increasing return to scale (economies of scale) Inter-industry specialisation with sectors clustering in locations which offer best access to product markets Intra-industry specialisation across firms which produce a horizontally differentiated variety of the industry’s products ECONOMIC GEOGRAPHY AND NEW ECONOMIC GEOGRAPHY (NEG) The core-periphery model (Krugman 1991) agglomeration and dispersion (agglomeration economies and agglomeration diseconomies) increasing returns to scale (economies of scale) Intra-industry specialisation due to differences in the size of the markets and concentration of demand Self-sustaining concentration of production in space can occur if economies of scale are large, transportation costs low, and enough production is mobile U-shape relationship between geographical concentration and transportation costs: agglomeration increases as trade cost decreases to an intermediate level and a second one in which diseconomies of agglomeration combined with ever lower transportation costs lead to dispersion.

Variety of defining regional specialisation in theory and practice #3 AGGLOMERATION CONCENTRATION GEOGRAPHICAL SECTORAL LOCATION (DISTANCE) IMPACT (OVERLAP)

Definition of regional specialisation #1 Regional specialisation is defined as the uniqueness of the region, which is determined by specific benefits, arising from the spatial agglomeration of industry entities and their production concentration. the importance of interaction between spatial and sectoral determinants, which we believe should be considered together, because of the complementary nature in shaping the uniqueness of the region related to its specialisation; regional specialisation is not the levels of agglomeration and concentration, but the scale benefits obtained by the region, which are associated with these processes or the uniqueness of the business

Definition of regional specialisation #2 CONCENTRATION AGGLOMERATION REGIONAL SPECIALISATION S2 S1 S4 S3 S1 – both high levels of spatial agglomeration and sectoral concentration (Sillicon Valley, Keihin in Japan) S2 – high level of spatial agglomeration and sectoral diversification (large cities and metropolitan regions) S3 – low level of spatial agglomeration and sectoral concentraion (exploitation of raw materials) S4 - both low levels of spaital agglomeratation and sectoral concentration (individual institutions with uniqueness in the supra-regional, and often transnational)

Regional specialisation as a dynamic process The nature of regional specialisation depends on the type of industry and its stage of development. On the one hand, industries offering standardised products such as textiles, food processing or auto production tend to be found disproportionately in smaller specialised metro areas. On the other hand, industries offering unique and diversified products such as publishing, financial or R&D tend to be found disproportionately in larger metro areas (Henderson, 2003, p. 2). Similar findings come from analysis of the product life cycle. In the early stages of product development firms locate in the diversified city, searching for its ideal process. This location is more expensive because of congestion and other disadvantages resulting from density of economic activities. Then firms relocate to a specialised city where all firms are using the same type of process and where the location economies are higher and the production costs are lower (Duranton & Puga, 2001, p. 1455). The stage of the product life cycle decides on the type of agglomeration economies. Jacobs’ externalities help in new industries, while MAR externalities are important in mature industries (Henderson et al., 1995; Neffke et al., 2011).

Key drivers of business activities Theories in economics and related concepts Division of labour /factor endowments Market size and factor endowments: labour and capital Knowledge base, spatial proximity& relational proximity Diverse sources of knowledge, urban amenities, spatial and relational proximity Territoire, milieu socio-cultural, relational, institutional and cognitive proximities Classical theory Comparative advantage based on labour specialisation Neo-classical theory Comparative advantage based on factor endowments New Trade Theory Aggregated economies of scale trade expansion mechanism based on professional distinctive competences, unique infrastructure, technologies and networks of suppliers New Economic Geography Cost reduction mechanism based on knowledge, and global-wide technology internationalisation Marshall – Arrow – Romer; Porter Proximity to infrastructure and knowledge based driven clustering mechanism Jacobs’s theory of urban growth Business anchorage and productivity growth mechanism based on urban amenities and diversified activities Knowledge-based economy Knowledge acquisition and accumulation mechanism Evolutionary Economic Geography Trust-based risk reduction mechanism The mechanism of agents’ interaction and adaptive process Regional specialisation: competitive advantage and productivity Regional specialisation: territory, innovation and competitiveness Regional specialisation: competitiveness and innovation

Descrpitive and normative apporach: Questions of economics and policy Target of analysis Research approach Firm and its location Region as a set of inter-linked locations Positive (process; descriptive and explanatory) Regional specialisation explains the benefits to the firm Regional specialisation explains growth patterns in regions Normative (final) Regional specialisation as the determinant for business strategic activities Regional specialisation as a criterion/ result for allocation of public funds

Case study - SPAG values for technology industries #1 High-tech knowledge intensive services High-tech industries Medium-tech industries Lubel-skie Wielko-polskie Śląskie Coverage 1 Distance 0.65 0.48 0.61 0.5 0.6 0.75 0.73 0.67 Overlap 0.15 0.14 0.26 0.43 0.27 0.36 0.17 SPAG 0.10 0.07 0.09 0.13 0.11 No. of obs. 3336 10597 11025 231 629 928 973 3086 4531

Case study - SPAG values for technology industries #2

Case study - SPAG values for technology industries #3

Case study - SPAG values for technology industries #4

Conclusions Regional specialisation should be defined and identified in terms of the integrated/complex approach, using both agglomeration and concentration of economic activity Regional specialisation is not the levels of agglomeration and concentration, but the scale benefits obtained by the region, which are associated with these processes or the uniqueness of the business Policies and strategies must be highly suited to the specific situation of the region (place-based solutions), but they also are required to bravely and smartly pave the visionary perspectives of their leaders who must be concerned with the regional economy as a whole rather than seek to develop sectoral specialisation. The mechanisms of regional specialisation depend on the specific factors, which impact the benefits gained by firms from economies of agglomeration and scale actually supported by different types of proximity. Thus, it shows the need for joint interpretation of spatial agglomeration, and of sectoral and geographical concentration to better understand regional specialisation.