Agents of Structural Change

The role of firms and entrepreneurs in regional diversification

CID Research Fellow & Graduate Student Working Paper No. 75

Frank Neffke, Matté Hartog, Ron Boschma, and Martin Henning
April 2014


Who introduces structural change in regional economies: Entrepreneurs or existing firms? And do local or non‐local founders of establishments create most novelty in a region? Using matched employer/employee data for the whole Swedish workforce, we determine how unrelated and therefore how novel the activities of different establishments are to a region’s industry mix. Up‐ and downsizing establishments cause large shifts in the local industry structure, but these shifts only occasionally require an expansion of local capabilities because the new activities are often related to existing local activities. Indeed, these incumbents tend to align their production with the local economy, deepening the region’s specialization. In contrast, structural change mostly originates via new establishments, especially those with non‐local roots. Moreover, although entrepreneurs start businesses more often in activities unrelated to the existing regional economy, new establishments founded by existing firms survive in such activities more often, inducing longer‐lasting changes in the region.

Keywords: Structural change, entrepreneurship, diversification, relatedness, regions, resource‐based view

Affiliated Program: Growth Lab