Are related and unrelated variety a suitable measures at analyzing industrial sectoral composition? A critical review

In this paper, we review some characteristics of the entropy measures. Regional sciences, particularly the Evolutionary Economic Geography approach, use such a method for investigating how knowledge spills within the industrial sectoral composition. In this approach, the total entropy (variety) is decomposed in Related and Unrelated variety. We argue that total entropy should be instead decomposed into alpha and beta components that are easier to interpret and more coherent with the mathematical foundations. Moreover, the beta entropy measures the local entity’s divergence concerning the entire economy. This is particularly useful in the context of a spatial transmission of knowledge.