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 non-local founders of establishments create most novelty in a region? Using matched employeremployee data for the whole Swedish workforce, we determine how unrelated and therefore how novel the activities of different establishments are to a region's industry mix. Up-and downsizing establishments cause large shifts in the local industry structure, but these shifts only occasionally require an expansion of local capabilities because the new activities are often related to existing local activities. Indeed, these incumbents tend to align their production with the local economy, deepening the region's specialization. In contrast, structural change mostly originates via new establishments, especially those with non-local roots. Moreover, although entrepreneurs start businesses more often in activities unrelated to the existing regional economy, new establishments founded by existing firms survive in such activities more often, inducing longer-lasting changes in the region.

Industrial Diversification in Europe: The Differentiated Role of Relatedness

“…This calls for a multiscalar perspective to assess the relative importance of local and nonlocal capabilities (Binz, Truffer, and Coenen 2014). And fifth, there is a need to develop a microperspective that identifies the key agents that drive diversification in different types of regions (Neffke et al 2018) and determines which regional factors make local actors in some regions successful in inducing institutional change to enable new activities. Finally, our findings suggest that regional policy should incorporate the fact that relatedness is an important factor enabling diversification in regions more in general (see Balland et al, forthcoming).…”

“…Unrelated diversification is often described as a more exceptional event, since it may require new capabilities that are accompanied by fundamental uncertainty and high 518 ECONOMIC GEOGRAPHY costs. For instance, it is extremely complex to diversify into pharmaceuticals when specialized in aerospace, since both activities are not related: the distance between their underlying capability bases is large (Neffke et al 2018).…”

Location determinants of green technological entry: evidence from European regions

“…Since the seminal insights by Marshall (1890), spatial concentration and agglomeration externalities have been indicated as key drivers underlying innovation as well as economic growth, emphasising the quasi-public nature of knowledge and its propensity to spread, or spill over, leading to localised increasing returns (Nelson and Winter 1982;Romer 1990;Lucas 1993). Building on this, an expanding body of theoretical and empirical works has brought to the fore the importance of local proximity and geographic clusters in the formation of new innovative companies.…”

“…This perspective is particularly interesting considering the limited empirical research on this specific category of new companies but also the role of new technology-based firms as important agents for the introduction of radical innovation and technological paradigm change, especially in the emergence of new industries and sectors characterised by a rapid pace of technological development (Nelson and Winter 1982;Klepper 1996;Storey andTether 1998, Ejermo andXiao 2014). In this sense, new green technology-based firms might play a crucial role, potentially complementary to incumbent innovators, in the sustainable transformation of industries and the development of novel environmen tal t echnologies (Hockerts and Wüstenhagen 2010;Criscuolo and Menon 2015).…”

The role of local embeddedness and non-local knowledge in entrepreneurial activity

“…This is important since previous research suggests the existence of underperforming firms which manage to survive despite low performance (Gimeno et al 1997). Taking account of other performance indicators would allow connecting the entrepreneurial performance to development of regions, particularly in terms of upgrading their knowledge base (Neffke et al 2014), as well as the role of entrepreneurs in the spatial diffusion of industries.…”