Is industrial related variety an enabling condition for regional entrepreneurship? A comparison between mining and non-mining regions in Chile

Abstract

A central question in Evolutionary Economic Geography is why regions differ in their ability to diversify and thus retain or expand their competitive position. Economic geography has generally tackled this question linking initial regional industrial structures with the emergence of new economic specializations. In this article, we argue that entrepreneurship is a key and largely overlooked mechanism of regional diversification, which has been shown to be eased by industrial related variety, but at the same time dampened by the weak linkages between the mining industry and the local economy. We analyze whether related variety is an enabling condition for entrepreneurship in mining regions. Using an unbalanced panel of around 187,000 new firms created between 2005 and 2011 in Chile, we show that related variety favors new firms’ creation, sales, and employment in non-mining regions, but not in mining regions. The results indicate that, due to the absence of pro-entrepreneurship effects of a relatedly-varied structure, mining regions face particularly challenging conditions for an entrepreneurship-based diversification process. Place-based policies attracting external knowledge, reinforcing territorial embeddedness of mining assets, and strengthening local absorptive capacity can help creating new development paths in mining regions driven by local entrepreneurs.