Smart specialization policy in the European Union: relatedness, knowledge complexity and regional diversification

TLDR

The operationalization of smart specialization policy has been limited by the lack of a coherent set of analytical tools. We propose a policy framework that centers on the concepts of relatedness and knowledge complexity. Using these findings, we construct a framework that highlights the potential risks and rewards for regions adopting competing diversification strategies. Diversifying into more complex technologies is attractive yet challenging for EU regions, but they can overcome this by developing new complex technologies that build on local related capabilities.

Abstract

The operationalization of smart specialization policy has been rather limited because a coherent set of analytical tools to guide the policy directives remains elusive. We propose a policy framework around the concepts of relatedness and knowledge complexity. We show that diversifying into more complex technologies is attractive but difficult for European Union regions to accomplish. Regions can overcome this diversification dilemma by developing new complex technologies that build on local related capabilities. We use these findings to construct a policy framework for smart specialization that highlights the potential risks and rewards for regions of adopting competing diversification strategies.