Regional diversification in Brazil: The role of relatedness and complexity

Abstract

The paper contributes to the growing literature on the relationship between relatedness, complexity and regional diversification. It explores regional diversification in an emerging economy, focusing on diversification opportunities of regions with distinct levels of local capabilities. We investigate the importance of relatedness and economic complexity for sectoral and technological diversification in all regions of Brazil during the period 2006–2019. Regions tend to diversify in sectors/technologies requiring similar capabilities to those already available locally. In general, the higher the sector/technology complexity, the lower the probability of diversification. However, in high‐complex regions, complexity reverses into a positive force for diversification. Our analysis shows diversification prospects vary widely across different types of regions in Brazil.