There has been a long debate about the role of industry structure in the literature on why some regions successfully achieve economic growth, while other regions stagnate or decline. This paper provides an empirical analysis in which we, based on a cluster analysis, develop a taxonomy for regional growth. In a second part of the study, we explore how specialization and entrepreneurship are meaningful to discriminate between the different types of regions. Our results suggest that regional entrepreneurship and industry diversity characterized by relatedness are key elements in understanding why some regions are leading while others lag behind. The suggested taxonomy is argued to contribute with a nuanced perspective that can enhance discussions about improvements of regional development policies and to further empirical analysis on the topic.

The notion of related variety has proved to be an important contribution to the literature on innovation-enhancing regional knowledge externalities in different industry structures. Related variety provides a disentangled view of diversification based on the technological and cognitive proximity of different industries. The core hypothesis of this concept, which states that related variety fosters innovation and employment growth by facilitating knowledge spillovers, has gained increasing empirical support. To date, a relatively modest number of empirical studies have explicitly linked related variety to enhanced regional innovative output. The role of entrepreneurship has also received little attention in the literature, even though economic theory emphasizes that entrepreneurs have an important role in transforming spillovers of knowledge into innovation and growth. The purpose of this paper is to contribute to the extant literature on regional innovation with an analysis that probes deeper into the mechanism by which related variety fosters innovation, and to examine how knowledge appropriation mechanisms affects the entrepreneurial opportunities that external knowledge presents. Our empirical analysis employs a moderated and mediated model with non-linear knowledge spillover effects of related variety. We use panel data on 60 Swedish functional analysis regions for the years 2008–2016 and estimate fixed effects models to examine the relationships between related variety, regional innovation and entrepreneurship. Conceptually, our results disentangle the effects of regional knowledge stocks and related variety on the rate at which new ideas are commercialized through entrepreneurship. We find a substantial direct effect of knowledge stocks, and an important indirect effect via knowledge spillovers between cognitively similar firms. A key contribution of this paper is that we show that this effect is conditional on the extent to which knowledge appropriation mechanisms are implemented, which has not been adressed in the literature on knowledge spillover effects of related variety before. Another novel contribution of this paper is that we find evidence of diminishing marginal returns to related variety with respect to innovation and entrepreneurship.