Entrepreneurial opportunity and related specialization in economic ecosystems

Abstract

• Related specialization is a new measure of entrepreneurial opportunity in metropolitan regions • Unlike existing measures of entrepreneurial opportunity at the regional scale, related specialization is based on the structure of regional economies, revealing the economic potential of specific industries represented by that structure • An advantage of related specialization as a measure of entrepreneurial opportunity is that it can be applied consistently at any scale of economic analysis where data on output are available • Policymakers have a new tool to identify and target industries with the greatest potential to catalyze sustained growth in their regions Entrepreneurial ecosystems are most often defined as locally bounded networks of institutions and individuals that help entrepreneurs to identify and exploit market opportunities. However, a prerequisite of the ability to exploit an entrepreneurial opportunity is the existence of the opportunity to begin with. In this paper, we propose an approach to representing how entrepreneurial opportunities are embedded in a regional economy. The central methodological contribution of our paper is to introduce the concept of related specialization, which we define as the concentration of high interdependencies between specialized industries within a metropolitan region, relative to the national level of concentration. We find that related specialization is positively correlated with entrepreneurial outcomes across U.S. metropolitan areas. We use related specialization to make a first attempt at representing the trophic structure of an economic ecosystem. In a biological ecosystem, the trophic structure refers to energy-transfer relationships between different species. As introduced in this paper, we propose the analogy that, in an economic ecosystem, the trophic structure may be mapped in terms of the supply-chain relationships between industries within a region. We argue that these analytic tools can help policymakers more readily understand the opportunities that are imminently available to entrepreneurs in their local environments.