Frank Neffke

How Do Regions Diversify over Time? Industry Relatedness and the Development of New Growth Paths in Regions

Abstract The question of how new regional growth paths emerge has been raised by many leading economic geographers. From an evolutionary perspective, there are strong reasons to believe that regions are most likely to branch into industries that are technologically related to the preexisting industries in the regions. Using a new indicator of technological relatedness between manufacturing industries, we analyzed the economic evolution of 70 Swedish regions from 1969 to 2002 with detailed plant-level data. Our analyses show that the long-term evolution of the economic landscape in Sweden is subject to strong path dependencies. Industries that were technologically related to the preexisting industries in a region had a higher probability of entering that region than did industries that were technologically unrelated to the region’s preexisting industries. These industries had a higher probability of exiting that region. Moreover, the industrial profiles of Swedish regions showed a high degree of technological cohesion. Despite substantial structural change, this cohesion was persistent over time. Our methodology also proved useful when we focused on the economic evolution of one particular region. Our analysis indicates that the Linköping region increased its industrial cohesion over 30 years because of the entry of industries that were closely related to its regional portfolio and the exit of industries that were technologically peripheral. In summary, we found systematic evidence that the rise and fall of industries is strongly conditioned by industrial relatedness at the regional level.

Agents of Structural Change : The Role of Firms and Entrepreneurs in Regional Diversification

abstract Who introduces structural change in regional economies: Entrepreneurs or existing firms? And do local or nonlocal establishment founders create most novelty in a region? We develop a theoretical framework that focuses on the roles different agents play in regional transformation. We then apply this framework, using Swedish matched employer–employee data, to determine how novel the activities of new establishments are to a region. Incumbents mainly reinforce a region’s current specialization: incumbent’s growth, decline, and industry switching further align them with the rest of the local economy. The unrelated diversification required for structural change mostly originates via new establishments, especially via those with nonlocal roots. Interestingly, although entrepreneurs often introduce novel activities to a local economy, when they do so, their ventures have higher failure rates compared to new subsidiaries of existing firms. Consequently, new subsidiaries manage to create longer-lasting change in regions.

Skill-relatedness und Resilienz: Fallbeispiel Saarland

ZusammenfassungDie Resilienz einer regionalen Ökonomie hängt maßgeblich davon ab, inwiefern relevantes spezifisches Humankapital zwischen deren Wirtschaftsaktivitäten wieder verwertet werden kann. Zu diesem Zweck wird das Instrumentarium Industry Space, das sich auf die Ähnlichkeiten in der Nutzung von Humankapital bzw. Skill-Relatedness zwischen Branchen stützt, zur Beschreibung der Wissensbasis zwischen den vorhandenen Wirtschaftszweigen einer Region sowie zur Analyse von dessen Wachstumsperspektiven und Resilienz vorgestellt. Beim Industry Space handelt es sich um ein Netzwerk von Branchen, die skill-related sind. Am Beispiel des Saarlandes wird mithilfe dieses Instrumentariums für den Zeitraum 2008 bis 2012 gezeigt, dass dessen Resilienz durch die Spezialisierung auf traditionelle Industriezweige, welche miteinander skill-related sind, gestärkt wird. Aber die im Zuge des Strukturwandels dieser Altindustrieregion entstandenen jungen technologieintensiven Branchen sind nicht mit dem älteren verarbeitenden Gewerbe verbunden, so dass hierdurch regionale Wachstumspotenziale unausgeschöpft bleiben.AbstractThe resilience of a region depends crucially on the extent to which industry-specific human capital can be redeployed across regional economy’s industries. To this end, we present a toolbox to analyze a region’s industrial structure, development prospects and economic resilience that highlights the human capital similarities, or skill-relatedness, among industries. The core of these analyses is the so-called industry space, a network that connects industries with similar human capital requirements. In a case study, we use this toolbox to identify the risks and opportunities for the economic perspectives and resilience of Germany’s state Saarland based on the time period 2008 to 2012. This analysis shows that one important concern for this former old-industrial region is that its traditional manufacturing base is almost unconnected in terms of skill-relatedness to the emerging high-technology activities that are central in the region’s innovation agenda.

Network Backboning with Noisy Data

Networks are powerful instruments to study complex phenomena, but they become hard to analyze in data that contain noise. Network backbones provide a tool to extract the latent structure from noisy networks by pruning non-salient edges. We describe a new approach to extract such backbones. We assume that edge weights are drawn from a binomial distribution, and estimate the error-variance in edge weights using a Bayesian framework. Our approach uses a more realistic null model for the edge weight creation process than prior work. In particular, it simultaneously considers the propensity of nodes to send and receive connections, whereas previous approaches only considered nodes as emitters of edges. We test our model with real world networks of different types (flows, stocks, cooccurrences, directed, undirected) and show that our Noise-Corrected approach returns backbones that outperform other approaches on a number of criteria. Our approach is scalable, able to deal with networks with millions of edges.

The Workforce of Pioneer Plants

Is labor mobility important in technological diffusion? We address this question by asking how plants assemble their workforce if they are industry pioneers in a location. By definition, these plants cannot hire local workers with industry experience. Using German social-security data, we find that such plants recruit workers from related industries from more distant regions and local workers from less-related industries. We also show that pioneers leverage a low-cost advantage in unskilled labor to compete with plants that are located in areas where the industry is more prevalent. Finally, whereas research on German reunification has often focused on the effects of east-west migration, we show that the opposite migration facilitated the industrial diversification of eastern Germany by giving access to experienced workers from western Germany.

The Principle of Relatedness

The idea that skills, technology, and knowledge, are spatially concentrated, has a long academic tradition. Yet, only recently this hypothesis has been empirically formalized and corroborated at multiple spatial scales, for different economic activities, and for a diversity of institutional regimes. The new synthesis is an empirical principle describing the probability that a region enters - or exits - an economic activity as a function of the number of related activities pre- sent in that location. In this paper we summarize some of the recent empirical evidence that has generalized the principle of relatedness to a fact describing the entry and exit of products, industries, occupations, and technologies, at the national, regional, and metropolitan scales. We conclude by describing some of the policy implications and future avenues of research implied by this robust empirical principle.

Does Managerial Experience Affect Strategic Change

To what extent is strategic change driven by new managers? We investigate this by analyzing industry switching rates of establishments after new managers have been recruited. We use matched employer-employee data of the workforce of Sweden between 1993 and 2010. Our identification strategy relies on the exogenous departures of managers and a local supply shift instrument to predict the background of a new manager. Hiring new managers as such does not seem to affect strategic change. However, new managers from unrelated industries significantly increase the likelihood that the establishment changes its main activity. Moreover, these activities tend to be closely related to the new manager’s prior background. Hence, managers not only influence the strategic direction of the establishment that hired them, but the fact that they tend to steer establishments into industries in which they had previously worked suggests that managerial skills and know-how are to some extent industry specific.