Diversity and spatial productivity growth

Various strands of literature analyse the role of product diversity in influencing long-run growth and development. First, product diversification is at the heart of modern economic development and innovation-based endogenous growth theories. Second, a product diversification mechanism is framed at the core of agent-based evolutionary growth theory and export-led growth models. Third, the spatial economic development literature has long debated whether specialization or diversification is more beneficial to regional growth. Finally, the literature on economic complexity considers the concept of product diversity together with that of ubiquity. In this chapter, we provide a review of these apparently heterogeneous approaches and show how they converge to the conclusion that spatial economic development and growth require diversification rather than specialization, but in a dynamic perspective. More precisely, they need a process of structural change that goes beyond the traditional view of reallocating production factors from some sectors of the economy to others. Industry dynamics, with the entry and exit of products and firms, sectoral shifts, and labour mobility involved in this process of structural change, can have significant social and economic consequences. Therefore, state interventions may be required to address possible market failures encountered during this process.