Departamento de Economía

The impact of related diversification in European regional economies and its consequences on innovation and cohesion policies.

Javier Barbero (Universidad Autónoma de Madrid), Olga Diukanova (JRC Seville, European Commission), Carlo Gianelle (DG REGIO, European Commission) , Simone Salottid (JRC Seville, European Commission), and Artur Santoalhae (TIK Centre, University of Oslo, Norway).

The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission.

Abstract. We contribute to the literature on the role of regional policy in accompanying and fostering industrial, technological and sectorial transformation. We use econometrics and general equilibrium modelling to assess the rationale for related diversification and understand the relevance of different region-specific interventions. Our results suggest that all regions can benefit from diversification achieved by introducing new technologies closely related to their existing ones. However, this related diversification has a greater potential for more peripheral and less developed regions, rather than for the more developed regions that should rather pursue more path-breaking ways to innovate. This offers interesting implications for policy interventions such as Smart Specialization in the European Union, calling for a differentiated approach depending on the technological space of the various regions. This evidence also highlights interesting consequences of related diversification on convergence and regional cohesion.