An evolutionary perspective on regional growth Ron Boschma Department of Economic Geography Utrecht University DIMETIC course July 3, 2007

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

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)

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?

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

Spatial analysis of the British automobile industry Boschma and Wenting (2007), ICC, vol. 16, no. 2, pp 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 : rapid growth : shake-out : consolidation spatial concentration: Coventry Britain’s motor city

Number of automobile producers, entrants and exits in Great Britain,

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?

(2) time of entry -ENTR1: cohort 1 ( ) -ENTR2: cohort 2 ( ) (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)

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)

Survival curves by pre-entry entrepreneurial background

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

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

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

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

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

Regional export profile 1 digit 2 digit 3 digit

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)

Regional Export ProfileRegional Import Profile 1 digit 2 digit 3 digit

Results employment growth value added growth productivity growth Variety Related variety **7.224* Unrelated variety Import variety Rel import variety3.290** ** Import similarity ***-0.695*** Northwest ***-7.457*** Northeast ***-5.502*** Centre2.677*-3.441*-4.622*** R-square F excluded variable South n=103 *p < 0.10, **p <0.05, ***p<0.01

Results employment growth value added growth productivity growth Variety Related variety **7.224* Unrelated variety Import variety Rel import variety3.290** ** Import similarity ***-0.695*** Northwest ***-7.457*** Northeast ***-5.502*** Centre2.677*-3.441*-4.622*** R-square F excluded variable South n=103 *p < 0.10, **p <0.05, ***p<0.01

Results employment growth value added growth productivity growth Variety Related variety **7.224* Unrelated variety Import variety Rel import variety3.290** ** Import similarity ***-0.695*** Northwest ***-7.457*** Northeast ***-5.502*** Centre2.677*-3.441*-4.622*** R-square F excluded variable South n=103 *p < 0.10, **p <0.05, ***p<0.01

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)