Thijs Verburg, Urban and Regional Research Centre Utrecht (URU), Utrecht University, Utrecht, The Netherlands, Frank Van Oort, Netherlands Institute for Spatial Research (RPB) & Urban Research Centre Utrecht (URU), The Hague, The Netherlands, Koen Frenken, Urban and Regional Research Centre Utrecht (URU), Utrecht University, Utrecht, The Netherlands
Variety, diversification and localised employment dynamics in the Netherlands (assigned to theme
The qualitative nature of economic development in terms of the variety of sectors or the variety of technologies has not systematically been addressed in economic research. One can distinguish between two types of relationships between variety and economic development. The first approach centres on variety, spillovers and growth, which have become a central theme in what is called new growth theory. It has been argued that, apart from spillovers occurring between firms within a sector, spillovers also occur between sectors. Following this argument, the present variety in an economy can be an additional source of economic growth. Only some technologies and sectors are complementary in that their joint presence within an economy causes additional growth. And, since spillovers are geographically bounded, differences in regional and urban growth should be related to qualitative differences in an economy’s composition at a localised level. A second way to relate variety to urban and regional economic development, and more specifically, to unemployment, is to view variety as a localised portfolio strategy to protect from external shocks in demand. In this context, one also speaks of localised diversification analogous to corporate diversification as a risk spreading strategy. A high sector variety of an urban or regional economy implies that a negative shock in demand for any of these sectors will have only mild negative effect on growth and employment. By contrast, regions and cities specialising in one sector, or a group of sectors with correlated demand, runs to risk of serious slowdown in growth and high rates of unemployment as a result of a demand shock. In our paper we test for both the growth and portfolio hypotheses by using indicators of related and unrelated diversification. We use the entropy measure for this, which allows us to measure the effect of variety at different levels of aggregation. The decomposable nature of entropy implies that variety at several digit levels can be analysed simultaneously because of a lack of collinearity. One expects, for theoretical reasons, that variety in a region or city at different digit levels of sector aggregation has different effects on economic performance variables of a region. We analyse (un)employment dynamics at municipal scale (NUTS4, 496 in the Netherlands) and at regional scale (NUTS3, 40 in the Netherlands). Spatial econometric estimation methods are used to control for spatial dependence between the units of observation.
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