Scandinavian Working Papers in Economics

Papers in Innovation Studies,
Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy

No 2015/15: Institutions and Diversification: Related versus Unrelated Diversification in a Varieties of Capitalism framework

Ron Boschma () and Gianluca Capone ()
Additional contact information
Ron Boschma: CIRCLE, Lund University and URU, Utrecht University
Gianluca Capone: IUSS, Pavia

Abstract: The Varieties of Capitalism literature has drawn little attention to industrial renewal and diversification, while the related diversification literature has neglected the institutional dimension of industrial change. Bringing together both literatures, the paper proposes that institutions have an impact on the direction of the diversification process, in particular on whether countries gain a comparative advantage in new sectors that are close or far from what is already part of their existing industrial structure. We investigate the diversification process in 23 developed countries by means of detailed product trade data in the period 1995-2010. Our results show that relatedness is a stronger driver of diversification into new products in coordinated market economies, while liberal market economies show a higher probability to move in more unrelated industries: their overarching institutional framework gives countries more freedom to make a jump in their industrial evolution. In particular, we found that the role of relatedness as driver of diversification into new sectors is stronger in the presence of institutions that focus more on ‘non-market’ coordination in the domains of labor relations, corporate governance relations, product market relations, and inter-firm relations.

Keywords: varieties of capitalism; institutions; relatedness; diversification; evolutionary economic geography

JEL-codes: B52; L16; O43; P16; P51

36 pages, April 12, 2015

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