Industrial specialization and economic performance: A case of Czech microregions

Abstract

An influential body of literature suggests that economic diversity rather than specialization fuels the economic performance of regions and nations. The authors argue that this hypothesis has no universal applicability and that a more differentiated view is needed. In particular, historical specificity of the local environment and structural characteristics of regional economies should be taken into account. They focus on the effects of industrial specialization on economic performance and the vulnerability of Central European post-communist regions, namely Czech microregions with less than 200,000 inhabitants. They examine whether the economic performance and vulnerability of these regions is fuelled rather by industrial specialization or diversity when controlling for other potential determinants of regional economic performance. Their findings show that the dependence of Czech regions on manufacturing correlates with higher economic performance but also with higher regional vulnerability. In addition, industrial specialization within manufacturing was found to be instrumental for the economic performance of regions with high dependence on manufacturing. With a decreasing share of employment in manufacturing, industrial diversity rather than specialization becomes more valuable for the economic performance of Czech regions.