Smart Specialization Policy in the EU: Relatedness, Knowledge Complexity and Regional Diversification

Abstract

Smart specialization has become a hallmark of the EU's Cohesion Policy. Envisaged as a bottom-up initiative identifying local knowledge cores and associated competitive advantages, the operationalization of smart specialization has been rather limited, as a coherent set of analytical tools to guide the policy directives remains elusive. To tackle the weak underpinning of smart specialization policy, we propose a policy framework around the concepts of relatedness and knowledge complexity. We use EPO patent data to provide evidence on how EU regions develop new technologies in the period 1990-2009. We find that diversifying into more complex technologies is highly attractive but difficult for EU 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. We show how potential costs of alternative strategies in regions may be assessed by making use of the relatedness concept, and how potential benefits of various smart specialization strategies can be derived from estimates of the complexity of technologies. A series of case-studies of different types of regions illustrate the utility of this policy framework.

Related to what? Reviewing the literature on technological relatedness: Where we are now and where can we go?

“…Conceived as a bottom-up approach, SS advocates that regions should leverage their existing capabilities as a way of identifying novel platforms upon which they can develop a competitive advantage in high value-added activities (Balland, Boschma, Crespo, & Rigby, 2018). The prospect of diversifying into high value-added activities has resulted in the approach gaining significant political traction with many regions keen to emulate a 'smart' approach (Kroll, 2019).…”

“…Moving beyond a purely related approach, Balland et al (2018) query what the addition of a complex dimension would mean for smart specialisation policy. According to these authors, the objective of SS should be to develop competences in new activities that increase the complexity of the region's economy.…”

Cohesion Policy incentives for collaborative industrial research: evaluation of a Smart Specialisation forerunner programme

“…A large part of the existing empirical literature on Smart Specialisation has focused on the engagement with private firms, government and civil society (Gianelle, Guzzo, & Mieszkowski, 2017), on the capacity of firms and regional and local governments to prioritize needs and opportunities clearly (Vivanco, Elorduy, & Eguía, 2016), on patterns of regional diversification (Balland, Boschma, & Rigby, 2016), and on the challenges for implementation in less developed regions (Innocenti & Lazzaretti, 2016).…”

Local entrepreneurship ecosystems and emerging industries: Case Study of Mazowieckie, Poland

“…Such new activities may provide more significant benefits but are associated with higher risks compared to the "safer" strategy of supporting industries with higher relatedness to the existing knowledge base, building on local related capabilities, i.e. the related variety approach (Balland et al, 2017). Hidalgo et al (2002) call such transformative activities "long jumps".…”

“…The KETs will normally be more available globally than locally, and if sourced from outside the region in cases where such technologies are not available locally, does not mean that the region has to develop "new technologies from scratch" (Balland et al, 2017). This underlines the importance of supporting non-local, global knowledge sourcing and links, and designing policies to facilitate this taking place.…”