Applications of Evolutionary Economic Geography

This paper is written as the first chapter of an edited volume on evolutionary economics and economic geography (Frenken, K., editor, Applied Evolutionary Economics and Economic Geography, Cheltenham: Edward Elgar, expected publication date February 2007). The paper reviews empirical applications of evolutionary economics in the field of economic geography. The review is divided in four parts: the micro-level of the firm, the meso-levels of industry and network, and the macro-level of spatial system. Some remarks on evolutionary policy in regional development are added as well as a short discussion of empirical problems that remain.

Economic policy from an evolutionary perspective: the case of Finland

In the last decade, the Finnish economy has shown an unprecedented recovery, after being hit by a deep crisis in the early 1990s. The paper views and interprets this successful transformation process based on ICT from an evolutionary perspective. Although the rapid pace of the restructuring of the Finnish economy suggests a break with the past, this remarkable recovery was firmly rooted in its economic history. In addition, Finnish public policy played its role in turning Finland into a knowledge economy. Although a master plan for the Finnish economy was lacking, many policies worked out quite well together over an extended period. Building on education, research and technology policy initiatives taken in the 1970s and 1980s, the deep economic crisis in the early 1990s paved the way for new policy directions, with a focus on network-facilitating innovation policies.evolutionary economics, economic geography, innovation policy, Finnish economy, Finnish policy, ICT cluster

A theoretical framework for Evolutionary Economic Geography: Industrial dynamics and urban growth as a branching process

We propose a framework that specifies the process of economic development as an evolutionary branching process of product innovations. Each product innovation provides a growth opportunity for an existing firm or a new firm, and for an existing city or a new city. One can then obtain both firm size and city size distributions as two aggregates resulting from a single evolutionary process. Gains from variety at the firm level (economies of scope) and the urban level (Jacobs externalities) provide the central feedback mechanism in economic development generating strong path dependencies in the spatial concentration of industries and the specialisation of cities. Gains from size are also expected, yet these are ultimately bounded by increasing wages. The contribution of our framework lies in providing a micro-foundation of economic geography in terms of the interplay between industrial dynamics and urban growth. The framework is sufficiently general to investigate systematically a number of stylised facts in economic geography, while at the same time it is sufficiently flexible to be extended such as to become applicable in more specific micro-contexts. A number of extensions related to the concepts of knowledge spillover and lock-in, are also discussed.evolutionary economic geography, urban growth, firm growth, Zipf, branching, innovation

Why is economic geography not an evolutionary science? Towards an evolutionary economic geography

The paper explains the commonalities and differences between neoclassical, institutional and evolutionary approaches that have been influential in economic geography during the last couple of decades. For all three approaches, we argue that they are in agreement in some respects and in conflict in other respects. While explaining to what extent and in what ways the Evolutionary Economic Geography approach differs from the New Economic Geography and the Institutional Economic Geography, we can specify the value-added of economic geography as an evolutionary science.evolutionary economic geography, new economic geography, institutional economic geography

The effect of regional differences on the performance of software firms in the Netherlands

In this paper, we concentrate on how evolutionary economics contributes to a better understanding of the spatial evolution of newly emerging industries. Inspired by evolutionary thinking, four types of explanations are discussed and tested in an empirical analysis of the spatial pattern of the software sector in the Netherlands. Traditionally, agglomeration economies provide an explanation for the spatial concentration of an industry. Firms located in a cluster of similar or related sectors benefit from cost reductions, due to lower transportation costs, a thick labour market, specialised suppliers and information spillovers. An evolutionary approach on agglomeration economies provides an alternative view. It focuses explicit attention on knowledge spillovers as a vehicle of local diffusion of organizational routines or competences from one firm to the other. Such transfers of (tacit) knowledge are facilitated by spatial proximity of firms and a common knowledge base. In addition, an evolutionary approach takes a dynamic perspective on the role of agglomeration economies. During the initial stage of development of a new industry, the surrounding environment is still directed to routines and competences related to existing industries. When the new industry concentrates in a particular area to a considerable degree, a supportive environment (specialized knowledge, labour with specific skills) may gradually come into being, and localization economies may arise. Other evolutionary mechanisms may also provide an explanation for the spatial formation of new industries. We distinguish another three of them. First of all, transfer of knowledge and successful routines between firms in an emerging industry may occur through spin-off dynamics. Secondly, (social) networks may function as effective channels of knowledge diffusion and interactive learning, because they can provide a common knowledge base and mutual understanding and trust. Thirdly, firms in new industries with organizational capabilities that can deal effectively with the lack of required resources (such as knowledge, skills and capital) may become dominant, due to selection and imitation. Based on cross-sectional data gathered among 265 software firms in the Netherlands in 2003, we have tested which factors have influenced the innovative productivity of these firms. Using regression techniques, the outcomes suggest that spin-offs and firms with organizational capabilities perform better, while networks relations do not seem to affect the performance of software firms. Geography matters as well: software firms located in a region with a labour market with more ICT-skills show a higher innovative productivity.Evolutionary economics, industrial location, evolution of industries, software sector, agglomeration economies, organizational capabilities, spin-off, networks

The spatial evolution of the British automobile industry

This paper aims to describe and explain the spatial evolution of the automobile sector in Great Britain from an evolutionary perspective. This analysis is based on a unique database of all entries and exits in this sector during the period 1895-1968, collected by the authors. Cox regressions show that spinoff dynamics, localization economies and time of entry have had a significant effect on the survival rate of automobile firms during the period 1895-1968.evolutionary economics, automobile industry, entry, exit

The effect of regional differences on the performance of software firms in the Netherlands

This paper aims to explore the effect of regional differences on the performance of software firms in the Netherlands. Inspired by evolutionary economics, we account for the impact of (1) co-location and sharing a local knowledge base; (2) pre-entry experience in the same or related industries; (3) being connected; and, (4) having organisational capabilities to cope with change. The outcomes of the regression analyses on data gathered among 265 software firms suggest that firms located in regions specialised in ICT have a higher innovative productivity. Spin-offs and firms with organisational capabilities also perform better, while network relationships do not affect the performance of software firms.evolutionary economics, agglomeration economies, innovative productivity, software industry, spin-offs

Co-evolution of firms, industries and networks in space

The cluster literature suffers from a number of shortcomings: (1) by and large, cluster studies do not take into account that firms in a cluster are heterogeneous in terms of capabilities; (2) cluster studies tend to overemphasize the importance of place and geographical proximity and underestimate the role of networks which are, by definition, a-spatial entities; (3) most, if not all cluster studies have a static nature, and do not address questions like the origins and evolution of clusters. Our aim is to overcome these shortcomings and propose a theoretical framework on the evolution of clusters. Bringing together bodies of literature on clusters, industrial dynamics, the evolutionary theory of the firm and network theory, we describe how clusters co-evolve with: (1) the industry they adhere to; (2) the (dynamic) capabilities of the firms they contain; and (3) the industry-wide knowledge network they are part of. Based on this framework, we believe the analysis of cluster evolution provides a promising research agenda in evolutionary economic geography for the years to come.cluster evolution, network dynamics, industrial dynamics, co-evolution, evolutionary economic geography

B2c e-commerce adoption in inner cities: An evolutionary perspective

Internet makes it possible for consumers to shop without visiting a physical store. As online shopping is becoming more popular, this could have significant impact on in-store shopping. The extent to which consumers, producers and retailers make use of the Internet as a complementary channel or as a substitute for in-store shopping is fundamental for the way traditional retailing will be affected. It is only recently that geographers are becoming interested in the spatial consequences of this new form of commerce. From a traditional geographical perspective, one could expect that business-to-consumer (b2c) e-commerce could make physical shopping redundant, leading to a ‘death of distance’. There are, however, several factors that may limit this new form of commerce, such as logistical constraints (e.g., personal delivery of goods may be quite expensive), habits of people, and the need for social contact. The main goal of the paper is to draw some expectations concerning the relationship between b2c e-commerce and inner city retailing. Using new insights based on evolutionary economics, hypotheses will be developed concerning the impact of b2c e-commerce on consumers’ shopping behaviour, retailers’ store strategy, and the inner city retailing environment as a whole. We claim that habits may act as a constraint to change consumers’ shopping behaviour. In addition, routines can explain why retailers may be rather reluctant in exploiting this new channel of commerce, and why they are most likely to adopt rather conservative e-commerce strategies. We also explain how and why inner cities, as important retailing and consumption places, may affect the way actors deal with this new form of commerce. One may expect that especially in these localities, both stimulating and limiting factors of b2c e-commerce adoption are predominant, depending on the quality or the attractiveness of the inner cities, among other things.evolutionary economics, e-commerce, urban economics

An evolutionary perspective on Internet adoption by retailers in the Netherlands

The paper analyses from an evolutionary perspective how retailers respond and adapt to b2c e-commerce. As such, the paper explores the diversity of behavior of retailers with respect to the adoption of e-commerce. More in particular, it examines empirically the extent to which the adoption of Internet strategies is affected by firm-specific features (e.g., habits of the entrepreneur, routines of firms), network relationships, and geographical proximity. Logistic regression analyses of 643 independent retailers in the Netherlands suggest that geography matters, controlling for other factors. That is, the probability of having an Internet strategy increases significantly when (a) the more knowledge spillovers are locally available; (b) the more demanding local customers are; and (c), the less rivalry is present locally.evolutionary economics, Internet strategies, retailers, city centres, the Netherlands