The non-linear effect of technological diversification on regional productivity: implications for growth and Smart Specialisation Strategies

May 18, 2023 6:56 am Published by

The project aims at exploring the effects of different forms of technological diversification on regional productivity. In the processes of technological knowledge diversification, while entropy-based notions of (related or unrelated) variety capture the degree of diversity in regional technology, product, or skill composition around specific sectoral knowledge domains, co-occurrence-based indicators can better capture how the different (related or unrelated) domains of a region’s industrial fabric are linked together. The entropy-variety literature tends to focus on specialized diversification, whereas the co-occurrence literature tends to focus on diversified specialization. Both dimensions need to be examined in tandem to understand better how regional industrial patterns are related to productivity growth. In order to do this, we jointly analyse the impact of technological diversification and diversity on regional productivity using both entropy-based measures of technological variety (Entropy) and a measure of technological co-occurrence (Coherence). For this purpose, we exploit the information contained in a sample of 268 European Union (EU) regions by employing multilevel analyses together with several robustness checks. The evidence derived from this investigation clearly shows that both the technological coherence and the entropy-variety dimensions of relatedness influence labour productivity growth in a non-linear manner. In addition, and for the first time to the best of our knowledge, we demonstrate that the technological coherence and the entropy-variety dimensions of relatedness influence productivity outcomes differently, to some extent in opposition to each other. Our analyses show that higher local productivity returns can be found in regions investing both around their existing technological capabilities and in more distant knowledge domains. Our findings have significant implications for understanding regional productivity growth processes and the implementation of Smart Specialisation Strategies.

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