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Thomas Ejdemo
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Entrepreneurship is crucial for regional development

Published: 19 November 2021

Research on the importance of industry composition for growth in a region is extensive. But the entrepreneur's role in this context is so far relatively unexplored. In a new dissertation in entrepreneurship and innovation from Luleå University of Technology, the author shows that viable entrepreneurship is crucial for a region to flourish.

In older research, large industries have been identified as the most important engine for innovation and growth. As modern knowledge-based economy has developed, the role of small and medium-sized innovative companies has become increasingly prominent. At the same time, the importance of the conditions of the geographical location has also been noted, not least because innovative companies tend to concentrate geographically. According to recent research, regions with a diversified business sector characterized by so-called related variety have the best prerequisites for innovation and growth. Highly specialized regions have poorer conditions, which is partly due to the fact that they are sensitive to the economic cycle and may find it more difficult to break a negative development by stimulating new growing industries.

Different companies but complementary knowledge

A region with high related variety is characterized by many different companies that conduct business in different areas but with nearby, complementary knowledge bases.

For example, these may be two manufacturing companies that manufacture different products but with similar technology and in similar markets. Such companies are well placed to develop new innovations by learning from each other, says the dissertation's author, Thomas Ejdemo.

In regions where diversification is unrelated, there are a variety of activities that are not obviously related to each other. The dissertation's empirical studies confirm previous studies according to which the probability of new innovations on the one hand is lower than in regions with related variation, but once they arise, they can lead to radical breakthroughs and create new markets. The dissertation contributes to the research area, among other things, by showing the importance of entrepreneurship in realizing innovation by combining previously unrelated knowledge.

High uncertainty

Such an environment is characterized by high uncertainty, which requires a high degree of entrepreneurial behavior for a breakthrough to take place.

One of the dissertation's conclusions is that high entrepreneurial activity and related diversification are each other's prerequisites that together can create a positive spiral. The probability of spill over effects, ie that knowledge from one industry can be applied in another to create business opportunities, is high in regions with related diversification, but entrepreneurs are needed who can identify these opportunities.

Entrepreneurs are crucial for regional development. Growth-promoting actors within a region should therefore try to create a picture of  what diversifications and specializations the region has a knowledge base with potential for innovation in, and work to strengthen entrepreneurial ability and activity so that opportunities for economic renewal and innovation can be identified and realized.

The dissertation relies on quantitative analyzes. The empirical material consists of, among other things, regional economic statistics from Statistics Sweden and other authorities that describe the composition and activity of business and industry and the demographics of the regions, as well as statistics on innovation activities at company level. In the dissertation, “regions” refers to the Swedish Agency for Economic and Regional Growth's so-called FA regions, a geographical labor market based on commuting patterns.