The role of relatedness and entrepreneurship in regional economic development

Abstract

This research analyses the role of relatedness and entrepreneurship in the economic development of regions. It finds that that relatedness among economic varieties has consequences in many aspects of economic development, both direct as well as indirect through other channels. Relatedness stimulates knowledge spillovers between firms and organisations, it affects entrepreneurial activity, and in turn is associated with the extent to which entrepreneurship contributes to economic growth of the region. Furthermore, this research finds that the process of industrial diversification is highly path-dependent. New activities within an economy are often related to already existing economic activity. This is explained by new activities being able to benefit from already present knowledge and capabilities. As a consequence, industrial diversification is more efficiently realised in related activities, as compared to unrelated activities, and regions diversify in line with already present activity.