Industrial specialization and economic performance: A case of Czech microregions

Abstract

An influential body of literature suggests that economic diversity rather than specialization fuels the economic performance of regions and nations. The authors argue that this hypothesis has no universal applicability and that a more differentiated view is needed. In particular, historical specificity of the local environment and structural characteristics of regional economies should be taken into account. They focus on the effects of industrial specialization on economic performance and the vulnerability of Central European post-communist regions, namely Czech microregions with less than 200,000 inhabitants. They examine whether the economic performance and vulnerability of these regions is fuelled rather by industrial specialization or diversity when controlling for other potential determinants of regional economic performance. Their findings show that the dependence of Czech regions on manufacturing correlates with higher economic performance but also with higher regional vulnerability. In addition, industrial specialization within manufacturing was found to be instrumental for the economic performance of regions with high dependence on manufacturing. With a decreasing share of employment in manufacturing, industrial diversity rather than specialization becomes more valuable for the economic performance of Czech regions.

Keywords:

• Czechia
• economic performance
• microregions
• specialization

Acknowledgements

The authors acknowledge support from the Czech Science Foundation through research grants: ‘International division of labour and the competitiveness of Czech economy, regions, and firms’ (P402/11/1712) and ‘Economic performance of Central-European non-metropolitan regions’ (15-03207S).

Editors: Arne Isaksen, Catriona Turner

Notes

1 For a description of the ‘most likely case’ research design and the possibilities for generalization, see Kofroň (2012).

2 Since 1989 most Czech manufacturing industries have undergone a combination of product downgrading and process upgrading towards less complex components but higher productivity (Blažek 2012).

3 Nomenclature statistique des activités économiques dans la Communauté européenne (Statistical Classification of Economic Activities in the European Community), a European industry standard classification system, which originally consisted of a 6-digit code.

4 The law stipulates the following conditions for obtaining support in manufacturing: a firm must either establish new production or expand existing production, and it must be an investment in tangible or intangible assets at least in the amount of CZK 50 million (EUR 1.81 million, of which at least CZK 25 million is to be invested in new machinery) in Regions I (economically weak and structurally affected regions) and a minimum of CZK 100 million (EUR 3.62 million, of which at least half is to be invested in new machinery) in other regions in Czechia. At least half of the minimum amount of investment is financed by equity. Investments must be performed within three years of the grant.

5 Unemployment volatility is also generally influenced by population size and position in an urban hierarchy (for empirical evidence in Central Europe, see Blažek & Netrdová 2011). Large cities and regions concentrate public services that may absorb unemployment increases.