Discuss the relationship between regional economies and the concepts of
specialisation, diversity, innovation and entrepreneurship as well as
economic resilience.
Introduction
Regional economics is gaining importance with the predominance of development of cities across the globe. This has influenced government institutions, industrial firms and consultancies to understand the working principle behind the growth of urban units. Patterns of specialization have been observed in several metropolitan cities. While the diversification is also seen. This has prompted question on the role of specialization and diversification in the regional economics. Specialized products, such as finance and smart technology, are redundant in metropolitan cities. Specialization such as the production of few product units in high concentration influence the decision making of market units. While the diversification of product provides availability of variety which, in turn, helps in sustaining diverse skilled labor force.
Specialization indicates the existence of entrepreneurs with ideas on more similar domain of products and services. Entrepreneur brings new product in the market thus the diversity of product is determined by the set of entrepreneurs in an economic system. Though it doesn’t imply that the specialisation of product is the direct consequence of entrepreneurs with similar ideas. Diversification of product and entrepreneurial methods are entangled and give rise to different forms of regional economic units. Likewise the possibility of convergence towards specialized form of regional economic unit is not excluded. Most metropolitan cities, such as San Francisco and Hongkong, have specialized markets consisting majorly of finance and modern technology. Though prior to the specialization diversity prevailed for longer period in San Fransisco than in Hongkong.
Entrepreneurs can use different methods, such as innovation or imitation, to successfully complete a product of which innovation is essential and necessary. Unlike imitation or replication, innovation brings new product space in the market. Highly specialized urban units have highly innovative products. For example, Silicon Valley, which consists of specialized industrial cities, produced Google and Facebook and thereafter the technology was imitated in other parts of the world. Innovation plays a key role in providing the direction of technological growth and thus the economic development.
Economic systems are open systems. Thus the robust performance of an economic system is determined by its resilience from some other system. Economic resilience plays a key role in maintaining a sustainable regional economic unit. In this essay we will discuss the relationship of specialization, entrepreneurship, innovation and economic resilience on the regional economics.
Relationship between specialization, diversity, entrepreneurship, innovation and economic resilience with regional economics
Specialization has been judged using the lense of social welfare. Highly specialized products can provide employment to less diverse set of labor force. This will negatively affect the labor allocation in regions with high labor skill diversity thereby declining the productivity of such sectoral units. On the other hand highly specialized products enhances the productivity of individual production units because of geographical and intellectual proximity. It has been argued that specialization cannot be understood only by the market concentration. Likewise the influence of specialisation on the growth of an urban unit can be altered not just by geographical but by intellectual proximity. The localized learning and competitiveness are key determinant of specialization in regional growth. Diversity of government institutions, corporate units and labor forces are interdependently linked leading to the emergence of complex system. The integration of different market units leading to the formation of networks belittle the notion of independent regional system. The feedback loop result in formation of chaotic and unpredictable economic network.
Several definitions of regional economics have been given. But with the emergence of modern technology the definition of regional economics as a closed and exhaustive set is becoming less feasible. An entrepreneur in San Fransisco can initiate a production with an entrepreneur in China. A product can be sold in China by a seller in India using the digital cryptocurrency. Due to the arise of digital proximity the entrepreneurial capabilities are reshaping the evolution of regional economies. Entrepreneurial and financial innovation drives the growth of an economy. Proximity of entrepreneurs with other economic agents builds competition, cooperation and strengthens the strategic learning as well. Due to the stronger socio-economic network the entrepreneurial and financial innovations are surging and building more integrated regional units. The building of socio-economic networks are strongly influencing the innovation in socio-economic network like the rise of digital marketing. Also the use of different resource bases, both internal and external to regional units, yield better innovation performance than the use of only internal resources. And hence the expansion of socio-economic system is integrating and complexly evolving the regional economic units. However the robustness of strong network over the failed innovative product is still not resolved. The failed products of 2008, such as Freddie Mac and credit default swaps, raises the question on the economic resilience of regional economies.
With the advancement of trade and internet, the independent economic systems are vanishing. Even with regional units with less dependencies on modern technology the influence of specialized industries cannot be ignored due to their integration in economic network. This was seen in 2008 economic crisis where several regional units were influenced because of failed financial system in some other regional unit. Though several indicators can be used to investigate the economic resilience, the integration of economic units makes the study complex because of feedback loops. This feedback loop can create hysteresis among different regional units leading to an uncontrollable outcome such as crisis. Understanding the methods to build economic resilience is becoming important issues for each regional unit.
Conclusion
With the advancement of modern technology and integration of different socio-economic units, the study of regional economics is becoming important and complex. Different market agents, including government institutions, firms and financial institutions, are participating in understanding the driving forces of regional growth and development. Product specialisation is found in most metropolitan cities while diversification is also observed frequent and considered necessary at primitive stage of growth. Entrepreneurial methods, such as innovation and imitation, drives the economy towards growth. Innovation in entrepreneurial as well as financial and government institutions plays key role in the development of a regional unit. Due to the integrity of socio-economic system, mediated by the technological development, the economic resilience is becoming necessary issue to understand.
Bibliography
Kemeny, T., & Storper, M. (2015). Is specialization good for regional economic development?. Regional Studies, 49(6), 1003-1018.
Eskelinen, H., Hannibalsson, I., Malmberg, A., Maskell, P., & Vatne, E. (2002). Competitiveness, localised learning and regional development: specialization and prosperity in small open economies (Vol. 14). Routledge.
Bar-Yam, Y. (1997). Dynamics of complex systems (Vol. 213). Reading, MA: Addison-Wesley.
Malecki, E. J. (1997). Technology and economic development: the dynamics of local, regional, and national change.
Uzzi, B. (1996). The sources and consequences of embeddedness for the economic performance of organizations: The network effect. American sociological review, 674-698.
Wong, P. K., Ho, Y. P., & Autio, E. (2005). Entrepreneurship, innovation and economic growth: Evidence from GEM data. Small business economics, 24(3), 335-350.
King, R. G., & Levine, R. (1993). Finance, entrepreneurship and growth. Journal of Monetary economics, 32(3), 513-542.
Oerlemans, L. A., Meeus, M. T., & Boekema, F. W. (1998). Do networks matter for innovation? The usefulness of the economic network approach in analysing innovation. Tijdschrift voor economische en sociale geografie, 89(3), 298-309.
Simmie, J., & Martin, R. (2010). The economic resilience of regions: towards an evolutionary approach. Cambridge journal of regions, economy and society, 3(1), 27-43.
Martin, R. (2011). Regional economic resilience, hysteresis and recessionary shocks. Journal of economic geography, 12(1), 1-32.
Peng, M. W., & Heath, P. S. (1996). The growth of the firm in planned economies in transition: Institutions, organizations, and strategic choice. Academy of management review, 21(2), 492-528.
Castells, M. (2011). The rise of the network society: The information age: Economy, society, and culture (Vol. 1). John Wiley & Sons.