Using a sample of 84,868 Chinese manufacturing firms operating in the period 2006-2013, we analyze whether related and unrelated variety—measured by entropy method, affects firms’ economic performance. Our results show that, with Heckman (1979) two-step sample selection model correcting only for sample-selection bias, unrelated variety has a negative and statistically significant impact. If we also correct the endogeneity of the main explanatory variables—related and unrelated variety, by employing Bartik’s (1991) shift-share approach, we find that they become insignificant. We find a positive effect for related variety and negative effect for unrelated variety only if we consider highly-developed Chinese regions. Finally, we find that related variety has a positive effect only in the case of large firms.
References
[1]
Aarstad, J., Kvitastein, O. A., & Jakobsen, S. E. (2016). Related and Unrelated Variety as Regional Drivers of Enterprise Productivity and Innovation: A Multilevel Study. Research Policy, 45, 844-856. https://doi.org/10.1016/j.respol.2016.01.013
[2]
Attaran, M. (1986). Industrial Diversity and Economic Performance in US Areas. The Annals of Regional Science, 20, 44-54. https://doi.org/10.1007/BF01287240
[3]
Audretsch, D. B. (1995). Innovation, Growth and Survival. International Journal of Industrial Organization, 13, 441-457. https://doi.org/10.1016/0167-7187(95)00499-8
[4]
Audretsch, D. B., Santarelli, E., & Vivarelli, M. (1999). Start-Up Size and Industrial Dynamics: Some Evidence from Italian Manufacturing. International Journal of Industrial Organization, 17, 965-983. https://doi.org/10.1016/S0167-7187(98)00002-2
[5]
Autor, D. H., & Duggan, M. G. (2003). The Rise in the Disability Rolls and the Decline in Unemployment. Quarterly Journal of Economics, 118, 157-206. https://doi.org/10.1162/00335530360535171
[6]
Bartik, T. J. (1991). Who Benefits from State and Local Economic Development Policies?W.E. Upjohn Institute for Employment Research. https://doi.org/10.17848/9780585223940
[7]
Bertrand, M., Duflo, E., & Mullainathan, S. (2004). How Much Should We Trust Differences-in-Differences Estimates? Quarterly Journal of Economics, 119, 249-275. https://doi.org/10.1162/003355304772839588
[8]
Bishop, P., & Gripaios, P. (2010). Spatial Externalities, Relatedness and Sector Employment Growth in Great Britain. Regional Studies, 44, 443-454. https://doi.org/10.1080/00343400802508810
[9]
Boschma, R., & Frenken, K. (2012). Technological Relatedness and Regional Branching. In Beyond Territory (pp. 64-81). Routledge.
[10]
Boschma, R., & Immarino, S. (2009). Related Variety, Trade Linkages, and Regional Growth in Italy. Economic Geography, 85, 289-311. https://doi.org/10.1111/j.1944-8287.2009.01034.x
[11]
Brachert, M., Kubis, A., & Titze, M. (2011). Related Variety, Unrelated Variety and Regional Functions: Identifying Sources of Regional Employment Growth in Germany from 2003 to 2008 (No. 15/2011). IWH Discussion Papers.
[12]
Cainelli, G. (2008). Industrial Districts: Theoretical and Empirical Insights. In C. Karlsson (Ed.), HandbookofResearchonClusterTheory (pp. 189-202). Edward Elgar Pubblishing. https://doi.org/10.4337/9781848442849.00019
[13]
Cainelli, G., & De Liso, N. (2005). Innovation in Industrial Districts: Evidence from Italy. Industry and Innovation, 12, 383-398. https://doi.org/10.1080/13662710500195991
[14]
Cainelli, G., & Ganau, R. (2019). Related Variety and Firm Heterogeneity. What Really Matters for Short-Run Firm Growth? Entrepreneurship & Regional Development, 31, 768-784. https://doi.org/10.1080/08985626.2019.1571636
[15]
Cainelli, G., Di Maria, E., & Ganau, R. (2014). An Explanation of Firms’ Internationalisation Modes, Blending Firm Heterogeneity and Spatial Agglomeration: Microevidence from Italy. Environment and Planning A, 46, 943-962. https://doi.org/10.1068/a4690
[16]
Cainelli, G., Ganau, R., & Iacobucci, D. (2016). Do Geographic Concentration and Vertically Related Variety Foster Firm Productivity? Micro-Evidence from Italy. Growth and Change, 47,197-217. https://doi.org/10.1111/grow.12112
[17]
Calvo, J. L. (2006). Testing Gibrat’s Law for Small, Young and Innovating Firms. Small Business Economics, 26, 117-123. https://doi.org/10.1007/s11187-004-2135-5
[18]
Caves, R. E. (1998). Industrial Organization and New Findings on the Turnover and Mobility of Firms. Journal of Economic Literature, 36, 1947-1982.
[19]
Chesher, A. (1979). Testing the Law of Proportionate Effect. Journal of Industrial Economics, 27, 403-411. https://doi.org/10.2307/2097961
[20]
Firgo, M., & Mayerhofer, P. (2018). (Un)related Variety and Employment Growth at the Sub-Regional Level. Papers in Regional Science, 97, 519-547. https://doi.org/10.1111/pirs.12276
[21]
Frenken, K., Van Oort, F., & Verburg, T. (2007). Related Variety, Unrelated Variety and Regional Economic Growth. Regional Studies, 41, 685-697. https://doi.org/10.1080/00343400601120296
[22]
Geroski, P. A. (1995). What Do We Know about Entry? International Journal of Industrial Organization, 13, 421-440. https://doi.org/10.1016/0167-7187(95)00498-X
[23]
Gibrat, R. (1931). LesInégalitséconomiques. Sirey.
[24]
Glaeser E. L., Kallal H. D., Scheinkman J. A., & Shleifer A. (1992). Growth in Cities. Journal of Political Economy, 100, 1126-1152. https://doi.org/10.1086/261856
[25]
Griffith, R., Redding, S., & Simpson, H. (2009). Technological Catchup and Geographic Proximity. Journal of Regional Science, 49, 689-720. https://doi.org/10.1111/j.1467-9787.2009.00630.x
[26]
Harhoff, D., Stahl, K., & Woywode, M. (1998). Legal Form, Growth and Exit of West German Firms—Empirical Results for Manufacturing, Construction, Trade and Service Industries. Journal of Industrial Economics, 46, 453-488. https://doi.org/10.1111/1467-6451.00083
[27]
Hartog, M., Boschma, R., & Sotarauta, M. (2012). The Impact of Related Variety on Regional Employment Growth in Finland 1993-2006: High-Tech versus Medium/Low-Tech. Industry and Innovation, 19, 459-476. https://doi.org/10.1080/13662716.2012.718874
[28]
Heckman, J. J. (1979). Sample Selection Bias as a Specification Error. Econometrica, 47, 153-161. https://doi.org/10.2307/1912352
[29]
Henderson, J. V. (2003). Marshall’s Scale Economies. Journal of Urban Economics, 53, 1-28. https://doi.org/10.1016/S0094-1190(02)00505-3
[30]
Howell, A., He, C., Yang, R., & Fan, C. C. (2018). Agglomeration, (un)-Related Variety and New Firm Survival in China: Do Local Subsidies Matter? Papers in Regional Science, 97, 485-500. https://doi.org/10.1111/pirs.12269
[31]
Jacobs, J. (1969). The Economy of Cities.Vintage Books.
[32]
Jacquemin, A. P., & Berry, C. H. (1979). Entropy Measure of Diversification and Corporate Growth. The Journal of Industrial Economics, 27, 359-369. https://doi.org/10.2307/2097958
[33]
Lotti, F., Santarelli, E., & Vivarelli, M. (2003). Does Gibrat’s Law Hold among Young, Small Firms? Journal of Evolutionary Economics, 13, 213-235. https://doi.org/10.1007/s00191-003-0153-0
[34]
Maine, E. M., Shapiro, D. M., & Vining, A. R. (2010). The Role of Clustering in the Growth of New Technology-Based Firms. Small Business Economics, 34, 127-146. https://doi.org/10.1007/s11187-008-9104-3
[35]
Mameli, F., Iammarino, S., & Boschma, R. (2012). Regional Variety and Employment Growth in Italian Labour Market Areas: Services versus Manufacturing Industries.CIMR Research Working Paper.
[36]
Mansfield, E. (1962). Entry, Gibrat’s Law, Innovation, and the Growth of Firms. American Economic Review, 52, 1023-1051.
[37]
Marshall, A. (1920). The Economics of Industry. Macmillan and Company.
[38]
Martin, P., Mayer, T., & Mayneris, F. (2011). Spatial Concentration and Plant-Level Productivity. Journal of Urban Economics, 69, 182-195. https://doi.org/10.1016/j.jue.2010.09.002
[39]
Nooteboom, B. (2000). Learning and Innovation in Organizations and Economies. Oxford University Press. https://doi.org/10.1093/acprof:oso/9780199241002.001.0001
[40]
Olley, S., & Pakes, A. (1996). The Dynamics of Productivity in the Telecommunications Equipment Industry. Econometrica, 64, 1263-1297. https://doi.org/10.2307/2171831
[41]
Pavcnik, N. (2002). Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants. Review of Economic Studies, 69, 245-276. https://doi.org/10.1111/1467-937X.00205
[42]
Reid, G. C. (1995). Early Life-Cycle Behaviour of Micro-Firms in Scotland. Small Business Economics, 7, 89-95. https://doi.org/10.1007/BF01108684
[43]
Saviotti, P. P., & Frenken, K. (2008). Export Variety and the Economic Performance of Countries. Journal of Evolutionary Economics, 18, 201-218. https://doi.org/10.1007/s00191-007-0081-5
[44]
Wagner, J. (1992). Firm Size, Firm Growth, and Persistence of Chance: Testing GIBRAT’s Law with Establishment Data from Lower Saxony, 1978-1989. Small Business Economics, 4, 125-131. https://doi.org/10.1007/BF00389853
[45]
Weiss, C. R. (1998). Size, Growth, and Survival in the Upper Austrian Farm Sector. Small Business Economics, 10, 305-312. https://doi.org/10.1023/A:1007972518380
[46]
Wooldridge, J. M. (2010). Econometric Analysis of Cross Section and Panel Data. MIT Press.