Relatedness, Industrial Branching and Technological Cohesion in US Metropolitan Areas

This paper builds on and complements work by evolutionary economic geographers on the role of industry relatedness for regional economic development and extends this work into a number of methodological and empirical directions. First, while recent work defines relatedness through co-occurrence, this paper measures relatedness as intensity of input-output links between industry pairs. Second, this measure is employed to examine industry evolution in 360 U.S. metropolitan areas over the period 1977-1997. The paper confirms the findings of existing work: Industries are more likely to be members of and enter and less likely to exit a metropolitan industry portfolio if they are technologically related to those industries. Third, based on average industry relatedness in a metropolitan area, an employment weighted measure of metropolitan technological cohesion is developed. Changes in technological cohesion can then be decomposed into selection, entry and exit effects revealing that the change in technological cohesion is not only due to the entry and exit of related industries but employment growth in strongly related incumbent industries.