The high importance of de-industrialization and job polarization for regional diversification: … and the limits to the importance of relatedness

Abstract
The process of regional diversification has received a growing interest in recent years with a focus on the role of relatedness between economic activities.
The main argument is that regions diversify into economic activities closely related to their current activities. However, there are also processes working against this rather path dependent process, such as de-industrialization,
job polarization, skill-biased technological change, and urbanization.
The purpose of this paper is to analyse the importance of relatedness and these
major processes in regional diversification with specific emphasis on the role of job polarization and de-industrialisation. The paper draws on linked employer-employee census data from Denmark 2008-2013.
Results show that, while relatedness does matter for regional diversification, job polarization and deindustrialisation entail that the most related industries tend to contract. Hence, the results show that regional diversification is affected by relatedness, but its effect is overshadowed by job polarisation and de-industrialization.
This effect is consistent across regions.
The results show a role for policy and
entrepreneurship in introducing unrelated diversification.