Related variety and regional growth in Spain

Abstract

This paper investigates whether related variety, among other types of spatial externalities, affected regional growth in Spain at the NUTS 3 level during the period 1995–2007. We found evidence that related variety matters for growth across regions, especially when using two new methods that measure revealed relatedness between industries. The first method is based on Porter's cluster classification while the second method uses the proximity index proposed by Hidalgo et al. Our analyses show that Spanish provinces with a wide range of related industries tend to show higher economic growth rates, once we control for other determinants of growth.