Towards a relatedness framework for understanding new industry development in regions

The aim of this article is to establish a relatedness framework for understanding new industry development in regions. The evolutionary economic geography (EEG) literature has made significant progress to understand processes of regional diversification. Nevertheless, the EEG approach suffers from a number of shortcomings, which this article addresses. First, the EEG approach face difficulties in explaining why some industries develop in certain regions and not in others despite the regions provide similar initial conditions. Second, the EEG approach tends to overemphasize technological relatedness between pre-existing and emerging economic activities, which result in a neglect of other critical regional capabilities. This paper develops a framework to understand industry emergence in regions by addressing these shortcomings. First, we argue that the reason some regions diversify into some regions and others do not is caused by the mobilisation of resources in the creation of innovation system processes. Second, we unfold the concept of relatedness by arguing that it is multidimensional encompassing besides technological relatedness, also product-market, institutional and natural resource relatedness. The paper draws on extant contributions in economic geography, which supports and exemplifies the proposed relatedness framework.