Technological diversification and the growth of regions in the short and long run

Technological diversification is crucial for regions to foster innovation and, therefore, to support economic growth. In this paper, we study how different types of technological diversification affect the performance of regional economies. We focus on the effect of changes in technological relatedness and unconventionality – as indicators of related and unrelated diversification – on GDP and employment growth in European regions. Leveraging information on regional economic performances and patents filed at the European Patent Office, we estimate Panel Vector Autoregression models and generate Impulse Response Functions to assess to what extent and with what persistence relatedness and unconventionality affect regional economic performances. Our findings, which have implications for the design of new place-based innovation policies, reveal that increases in technological relatedness have a short-term positive effect on employment growth but a negative effect on GDP growth. Conversely, increases in technological unconventionality have a higher and long-lasting positive impact on GDP growth but no effect on employment growth.