Heterogeneous relatedness and firm productivity
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Heterogeneous relatedness and firm productivity S. Stavropoulos1,2 · F. G. van Oort3,4 · M. J. Burger1,2 Received: 11 December 2018 / Accepted: 28 February 2020 © The Author(s) 2020
Abstract In this manuscript, we relate regional structural composition—related and unrelated variety—to firm-level productivity in European regions, applying a Cobb–Douglas production function framework and using firm-, industry- and regional-level mixed hierarchical (multilevel) models. Our analyses indicate that regional-related variety has a positive impact on firm productivity in European regions, especially for firms in high-tech and medium-tech regions. These outcomes have implications for European policies on competitiveness as firms embedded in regions without these technological and institutional circumstances are systematically worse off in terms of productivity, and catching-up is not obvious for such regional economies. JEL Classification R11 · O18 · C31
1 Introduction In economic geography, development economics and management studies, cognitive relatedness (also known as technological proximity, cognitive proximity, technological closeness, non-tradable capabilities similarity or skill relatedness) of firms, industries and regions is increasingly suggested to be an important precondition for * S. Stavropoulos [email protected] F. G. van Oort [email protected] M. J. Burger [email protected] 1
Department of Applied Economics, Tinbergen Institute, Erasmus University Rotterdam, Rotterdam, The Netherlands
2
Erasmus Happiness Economics Research Organization, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands
3
Department of Applied Economics and Institute for Housing and Urban Studies (IHS), Erasmus University Rotterdam, Rotterdam, The Netherlands
4
Department of Economic Geography, Utrecht University, Utrecht, The Netherlands
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economic diversification, industry branching and economic development in countries, cities and regions (Boschma 2005; Frenken et al. 2007; Hidalgo et al. 2007; Neffke and Henning 2013). As was already noted by Smith (1776, p. 430), more developed societies tend to be more diversified in their economies: Though in a rude society there is a good deal of variety in the occupations of every individual, there is not a great deal in those of the whole society (…). In a civilized state, on the contrary, though there is little variety in the occupations of the greater part of individuals, there is an almost infinite variety in those of the whole society. In this vain, the literature on economic development of countries has focused on the impact of changing patterns of branching and economic complexity on economic growth (Hausmann and Hidalgo 2011; Hidalgo and Hausmann 2009). However, as pointed out by Saviotti and Pyka (2004, 2010), diversification is not only a determinant of growth, but also a result of growth. Hence, diversification and economic growth are co-dependent, where diversification is a prerequisite for growth, while simultaneously
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