6_Lect_Constructing Regional Advantage, Related and Unrelated Variety

Lecture 1 - Introduction: economic geography and its recent paradigms
Evolutionary
Economic
Geography
Summer
Semester
2021
6th lecture
11/05/2021

5) 06-05: Recap > Path creation > Resilience Thinking and
Strategies focused on Urban-Rural areas
6) 11-05: Recap > Constructing Regional Advantage, Related
and Unrelated Variety
7) 18-05: Evolutionary Economic Geography and Place-Based
Regional Policies, the Entrepreneurial Region
8) 20-05: Strategic Thinking in Regional Development, Strategic
Spatial Planning and Regional Attractiveness Strategies
Lectures, April, May, June 2021
Tuesday, 10:15 – 11:45 | Thursday, 10:15 – 11:45
OLAT

Recap > Resilience through
evolutionary economic geography Boschma (2015)
 In the literature resilience means to avoid path dependence, or a
move away from it, as if new growth paths are detached from
their past, and as if regions need to escape from their historical
legacy to achieve that. HOWEVER
 Boschma proposes a conceptualization of regional resilience in
which history is key to understand how regions develop new
growth paths (here starts the critique), as pre-existing industrial,
network and institutional structures in regions provide
opportunities but also sets limits to the process of diversification
 Scholars have advocated an evolutionary approach to regional
resilience instead, in which the focus is on the long-term capacity
of regions to reconfigure their socio-economic structure (e.g.
Christopherson et al., 2010; Simmie and Martin 2010).
From an evolutionary EG perspective > the ability of
regions to reconfigure their socio-economic and
institutional structures to develop new growth paths.

Recap > Towards an evolutionary
conceptualization of regional resilience
Boschma (2015)
 From an evolutionary EG perspective Regional
Resilience is > responsiveness to shocks:
 terrorist attacks,
 natural disasters,
 global warming,
 global economic crises,
 major plant closures > disruption of suppliers,
 technologies becoming obsolete,
 fall of complete industries,
 political transformations, and so forth…
 Many economic geographers have investigated
 How regions responded differently to
 De-industrialization
 The shift from Fordist to neo-Fordist
(Chapple and Lester 2010), and
 Economic recessions (Domazlicky 1980).

Learning from other disciplines:
flood resilience of cities
Flood protection concept of the HafenCity. Source: HafenCity Hamburg
Restemeyer et al. 2015

Learning from other disciplines
Basements of buildings during a storm surge in 2007
Basements of buildings, usual situation
Flood resilience should not be
a separate policy, but integrated
into a broader urban agenda.

Boschma (2015)
 In an evolutionary framework, resilience in the
meaning of the capacity of a region to sustain
long-term development
 The capacity of a region to respond positively to
short-term shocks // anticipate failure of systems
 Long-term evolution of regions and their ability to
adapt and reconfigure their industrial,
technological and institutional structures in an
economic system that is restless and evolving
“resilience is considered as an
ongoing process rather than a
recovery to a (pre-existing or new)
stable equilibrium state …”
(Simmie and Martin 2010, p. 31).

Learning from other disciplines > important to
understand that “shocks” will (still) unfold

 Resilience then depends on the ability
of regions to cope with structural
change (e.g. from heavy industry to
tourism destination), that is, to create
new growth paths
 In order to counterbalance inevitable
processes of stagnation and decline in
their regional economy (Saviotti 1996),
 This requires a better understanding of
how regions can adapt to changing
circumstances while securing their
adaptability = being resilient = capacity
to change and respond to change
Boschma (2015)

 Resilience in connection with regions might be a useful concept in
ecological and disaster studies, it is much less so in connection to regional
economies due to three main shortcomings:
 First, the focus on equilibrium and multi-equilibrium;
 Secondly, the neglect of state, institutions and policy at several spatial
levels and
 Thirdly, the neglect of culture and social factors affecting adaptability
(Pendall et al., 2007; Swanstrom, 2008).
 The resilience framework seems to stress more the recovering of existing
industrial structures (adjustment) rather than the promotion of adaptation
and renewal (totally new paths).
 We should be careful to take up another fashionable concept without first
carefully scrutinizing the value of it in answering key questions of our
subject, such as differences in regional economic adaptability.
Critique from economic geographers
Hassink, 2010

Regional Resilience: further readings
1.F_06-05 - Lect. 5 - Resilience Thinking and Resilience Strategies in a Spatial Context etc (OLAT)
A “whole-of-government” approach is
needed to design at the national, regional
and local lever economic development
policies, population and health policies,
labour market policies, and skills and
education policies targeting sustainable
and resilient regions.

Urban and Regional ‘Resilienz’ discourse
 Birkmann (2008), for example, as well as
Greiving and Fleischauer (2009)
conceptualize resilience in association
with the discussion about climate
change and disaster management.
 Wherever cities are drawn into a
downward spiral of urban decline – may
it be through economic crisis, de-
industrialization, the loss of jobs, social
and political transformation,
outmigration or demographic change –
it is hard for them to recover, to operate
and provide services under conditions
of distress, to retrofit aging buildings
and neighborhoods, or to reorganize
and eventually reinvent themselves.
This calls for a broader
understanding of the term resilience

Resilience and path dependency theory
 Development paths can lead to both
positive and negative effects.
 For this reason the path concept is
analytically suitable for assessing
resilience and the adaptability of
regional development to new
challenges in the form of natural risks
and longer-term processes of change.
 Securing resilience with the goal of
sustainable development may also
require the overcoming of an
institutional path-dependent logic of
action as well as the adaptation of
development paths through mindful
deviation.

Evolutionary economic geography

Heads up
Regional
resilience
Business-side of
resilience

Business-side of resilience
For example
 Disruption in supply chains
 Approval of supply chain law
 Approval of environmental law
This will impact firm / industrial dynamics
Eventually will lead to structural change
Think geographically – embrace evolutionary perspectives

Disruption in supply chains
These firms relied on
suppliers from this
region/country
Disruption – shock – inefficiency
Find alternatives supplies, but
 Why?
 Where?
 Support new regional path
development?

Supply chain resilience: literature (Adobor 2018)
 Supply chains have become the backbone of the global
economy, partly accounting for the rapid growth of such
giant conglomerates like Walmart and Amazon, to name
just a few (Van der Vegt et al. 2015).
 Research on finding new ways of dealing with, and
overcoming the risks and disruptions that supply chains
face (Sheffi 2007).
 Christopher and Peck (2004) who define resilience
as ‘the ability of a supply chain to return to its
original state or move to a new, more desirable
state after a disturbance’ (p. 2).

Placing the findings against ongoing debates
Source

Placing the findings against current events
 The crisis highlighted the essential need to uphold the free movement of
persons, goods, services and capital in the Single Market and the need
to work together to strengthen its resilience to disruptions.
 It proposes new measures to strengthen the resilience of our Single
Market, especially in times of crisis. It addresses the need to better
understand our dependencies in key strategic areas and presents a
toolbox to address them.
Source

Heads up
https://www.youtube.com/watch?v=JHJRPGp1K-0&feature=youtu.be
Speaker: Prof. Michaela Trippl (University of Vienna)
Discussant: Dr. Markus Steen (SINTEF)

Constructing Regional Advantage
Asheim, B., Boschma, R., & Cooke, P. (2006). Constructing Regional Advantage: Principles -
Perspective - Policies. (Final report from DG Research Expert Group on 'Constructing
Regional Advantage'). European Commission.
e.g. Hassink, 2010
Concepts related to evolutionary economic geography, such as path dependence,
lock-ins, constructing regional advantaged and related variety as well as cluster
life cycles, have been used in order to theorize regional adaptation.
Source
Exchange
Research
Policy

Central condition is understanding
Advantage
Constructed

Defining
Comparative Advantage—Regions have been a focus for economists who
viewed them through the lens of development economics usually set in a
framework of comparative advantage.
 This idea, deriving from David Ricardo (1772–1823) a classical economist and
trade theory, explained economic welfare in terms of initial resource
endowments/capacities/qualities traded between regions and nations.
 Cotton goods enjoying a comparative production advantage from mercantile
and climatic conditions in north-west England were traded with Port wine
from Portugal’s northern region enjoying a comparable mercantile and
climatic comparative advantage.
They can produce that
‘good’/delivery that service
at a lower
relative opportunity cost in
comparison to other regions

Defining
Key word specialization

Defining
Competitive Advantage—By the mid-1970s, visible cracks were appearing in
the economic models and frameworks that characterize pure comparative
advantage. Countries with a large labour supply would naturally export goods
that were labour-intensive (e.g. China), while countries that were
technologically advantaged (e.g. the US) produced and exported
technologically advanced products.
The competitive advantage of firms in which distributed supply chains
and the role of large domestic markets were present became accepted,
and saw this advantage as central to explanations of inter-firm and firm-
market success. Intra-industry trade and localized demand conditions for
market competitiveness were highlighted.
The paradox arose when advanced economies
exported labour-intensive goods as well as
technologically intensive goods.

Defining
Comparative Advantage Competitive Advantage
Labour intensive v.s. technology intensive
A key advantage is the unique competence of firms
that cannot easily be copied by others

Defining
Constructed Advantage—The analytic observations of the two preceding
perspectives do not embrace the new dynamics of innovation and the
capacity to exploit them which are essential to growth.
This knowledge-based construction requires
interfacing developments in various directions:

Defining
 Economy—regionalization of economic development; “open systems”
inter-firm interactions; integration of knowledge generation and
commercialization; smart infrastructures; strong business networks.
 Governance—multi-level governance of associational and stakeholder
interests; strong policy-support for innovators; enhanced budgets for
research; vision-led policy leadership; global positioning of local assets.
 Knowledge infrastructure—universities, public sector research,
intermediary agencies, professional consultancy, etc. have to be actively
involved as structural puzzle-solving capacities.
 Community and culture—cosmopolitanism; sustainability; talented
human capital; creative cultural environments; social tolerance.
Cooke (2007)

Defining
Cooke (2007)
Constructed Advantage is a strategic policy
perspective of practical use to business firms,
associations, academics, and policy makers.
It is aimed at optimizing global knowledge
flows with embodied mechanisms within
regions enabling them to evolve spatial
knowledge domain institutions and regional
innovation system capabilities.

Defining
Relational embedding of institutions that assist regions to evolve
Cooke (2007)

Defining
Emphasizes that regional advantage does not
necessarily emerge spontaneously even in clusters
of firms; rather, advantages can be constructed
through proactive partnerships between public and
private actors.
 It is important to stimulate knowledge flow and
interactive learning between proximate partners,
particularly between those with related but also
different knowledge (unrelated) (Boschma and
Frenken, 2011; Noteboom et al., 2007).

CRA: knowledge spillovers & proximity
The literature on agglomeration economies focused on the question
of whether knowledge spillovers are geographically confined
(FELDMAN, 1994), and whether specialized regions are more
conducive to innovation and growth, as compared with regions with
more diversified industrial structures (GLAESER et al., 1992).
Some suggest that specialization
may arise from a thick and
specialized labour market, the
presence of specialized suppliers
and large markets, and regional
knowledge spillovers
More diversified the regional
structure, the better it is,
because diversity triggers
new ideas, induces
knowledge spillovers and
provides valuable resources
Innovation and growth

There is increasing evidence that knowledge will only spill over
from one sector to another when they are complementary in
terms of competences.
To truly support regional development
Nor regional diversity
(variety)
Neither regional specialization
(specific tacit knowledge)
Regional development is more likely to occur when
knowledge spills over between local sectors, rather than
within one sector, but only as long as the sectors are
technologically related.

Related variety Unrelated variety
CRA underlines that innovation processes are strongly shaped by the
specific knowledge base of activities and their combination within
and between regions (Boschma, 2014).
The CRA concept brings together three key
concepts: (1) related and unrelated variety; (2)
differentiated knowledge bases; and (3) policy
platforms (Boschma, 2014).
Supporting constructing a regional advantaged
Knowledge exchanges

Related variety Unrelated variety
CRA: related and unrelated variety
Defined as a diversity of firms and
sectors in a region that could
complement each other;
Is principally about the economic
importance of bringing together
different but complementary
pieces of knowledge (Boschma &
Frenken, 2011)
Describes the situation when
a region hosts firms from
unrelated industries; Has a
stronger effect since
knowledge combinations
from unrelated areas can
introduce more radical
novelty (Saviotti & Frenken,
2008). Works as a portfolio
against unemployment;

Related and unrelated variety:
Knowledge exchanges
Asheim et al 2011
‘science based/
know-why’;

Knowledge exchanges
Asheim et al 2011
‘engineering based/
know-how’;

Knowledge exchanges
Asheim et al 2011
‘arts based/
know-who’

Example
The Euroregion
Galicia–northern
Portugal

Example

Example
Constructing Cross-Border Advantage
Oliveira 2015

Example
Oliveira 2015
Case study work: in-depth interviews + content analysis of policy documents
Policy: Joint Investment Programme Galicia–northern Portugal 2014–20.
Cross-border
Relatedness

Oliveira 2015
Sciences &
textile
Agro-food &
health
Constructing Cross-Border Advantage
Flows/cooperation
Policy
implications
Regional
identity
Regional
Positioning

How related variety may contribute to
economic renewal and growth
Post-war experience of the Emilia-Romagna region in the
northern part of Italy. Already for many decades Emilia-
Romagna has been equipped with a diffuse and pervasive
knowledge base in engineering.
After the Second World War, a wide range of new sectors
emerged out of this pervasive and generic knowledge base
one after the other. Examples are sectors like the packaging
industry, the ceramic tiles sector, luxury car manufacturers,
robotics, and agricultural machinery. As such, these new
applications made the regional economy of Emilia-Romagna
diversify into new directions. These new sectors not only built
and expanded on this extensive regional knowledge base, but
also they renewed and extended it, further broadening the
economy of Emilia-Romagna. Asheim et al 2011

Other examples
 Evidence is found that related and unrelated knowledge capabilities both
support the emergence of radical innovations, although strong related
capabilities are especially important.
 The pronounced effect of related variety might be explained to a certain
extend by risk-aversion of German managers and venture capitalists.
 Overall, this is of major interest for German policy-makers.
 In the light of founding a public institution to support radical innovations.
 Suggest to further support cross-innovations stemming from different
technological backgrounds.
 Fund joint R&D projects with partners from different cognitive and
geographical backgrounds > regions could strengthen linkages to other
regions in order to gain access to new knowledge.
 Crowd-investment could be promoted to foster unrelated knowledge.
Source

Constructing regional advantage is a theoretical concept
with a high impact upon regional policies in nations
which development is strongly affected by the processes
of knowledge based economy.
The key notions of related variety and differentiated
knowledge bases enable to understand the knowledge
flows between industries in the innovation processes.
We can observe the shift to endogenous regional policy
based on innovation and knowledge (place-based /
smart specialization) and the application of constructed
advantage principles deserve further research.
Conclusion

Knowledge tends to accumulate mainly at the firm level,
variety is the rule, and the more diversified a regional
economy is, the higher regional growth.
However, knowledge may also diffuse between firms,
having an additional impact on regional development.
Knowledge spills over more intensively when regions are
endowed/equipped with related industries that share a
common knowledge base. This makes regional
economies to diversify into new directions and start up
new growth paths, which are crucial for long-term
regional development…however
Conclusion

Knowledge creation and knowledge spillovers alone will
not lead to innovation.
Regions require a critical mass of organizations that
provide necessary inputs to the innovation process, such
as knowledge, skills and capital.
Organizations need to connect and interact, to enable
flows of knowledge, capital and labor.
Conclusion
Identify regional potentials and
bottlenecks accordingly
To avoid regional lock-in, it is crucial
that public policy is open to
newcomers and
new policy experiments.

Lecture 1 - Introduction: economic geography and its recent paradigms
Thank you
Questions?
See you 18-05 (Tuesday): Evolutionary
Economic Geography and Place-Based Regional
Policies, Knowledge Base and the
Entrepreneurial Region (OLAT / Zoom)
Evolutionary Economic Geography

6_Lect_Constructing Regional Advantage, Related and Unrelated Variety

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