Smart specialization policy in the European Union: relatedness, knowledge complexity and regional diversification

Abstract

The operationalization of smart specialization policy has been rather limited because a coherent set of analytical tools to guide the policy directives remains elusive. We propose a policy framework around the concepts of relatedness and knowledge complexity. We show that diversifying into more complex technologies is attractive but difficult for European Union regions to accomplish. Regions can overcome this diversification dilemma by developing new complex technologies that build on local related capabilities. We use these findings to construct a policy framework for smart specialization that highlights the potential risks and rewards for regions of adopting competing diversification strategies.

Industrial Diversification in Europe: The Differentiated Role of Relatedness

“…In particular, these studies tend to focus on regions and show that industries are more likely to enter and more likely to survive in a region when related to existing industries in that region (see, e.g., Neffke, Henning, and Boschma 2011;Boschma, Minondo, and Navarro 2013;Essletzbichler 2015;Cortinovis et al 2017;He, Yan, and Rigby, forthcoming). The same is true for new technologies that are more likely to occur in regions when related technologies are locally present (e.g., Kogler, Rigby, and Tucker 2013;Colombelli, Krafft, and Quatraro 2014;Heimeriks and Boschma 2014;Van Den Berge and Weterings 2014;Boschma, Balland, and Kogler 2015;Feldman, Kogler, and Rigby 2015;Rigby 2015;Tanner 2016;Montresor and Quatraro 2017;Balland et al, forthcoming). In other words, related diversification is a dominant pattern in many regions.…”

The Importance of Regional Export Development and a Specialised Local Supply Chain on the Development of Australia's Regions

“…With each firm striving for an advantage, radical innovations arise and new sectors of industry are formed (Balland et al, 2018). Such improvements are driven by the fact that the firms in these sectors are interacting with one another and using a knowledge base comprised of similar sets of cognitive capabilities and skills that each is striving to make increasingly better use of.…”

“…The goal of such policies is not to make the industry structure of regions more specialised (or less diverse) but rather to build on the existing strengths of a region as reflected in the common processes and skills used by the region's firms (Balland et al, 2018). The goal of such policies is not to make the industry structure of regions more specialised (or less diverse) but rather to build on the existing strengths of a region as reflected in the common processes and skills used by the region's firms (Balland et al, 2018).…”

“…Such improvements are driven by the fact that the firms in these sectors are interacting with one another and using a knowledge base comprised of similar sets of cognitive capabilities and skills that each is striving to make increasingly better use of. With each firm striving for an advantage, radical innovations arise and new sectors of industry are formed (Balland et al, 2018).…”

“…In this context, there is an important distinction that must be made between knowledge that is codified and therefore easily transferable from place to place and knowledge that is tacit or built around firms working together in a local area to produce innovative processes that enhance the comparative advantage of a region as a whole (Balland et al, 2018). Over time, tacit knowledge will become codified, but the economic advantage to a region will be maintained as local firms, continuing to work and learn together, push back the frontiers of knowledge to their mutual advantage and to the advantage of new businesses that can adopt the new radical processes.…”