Heterogeneous relatedness and firm productivity

In this manuscript, we relate regional structural composition—related and unrelated variety—to frm-level productivity in European regions, applying a Cobb–Douglas production function framework and using frm-, industry- and regional-level mixed hierarchical (multilevel) models. Our analyses indicate that regional-related variety has a positive impact on frm productivity in European regions, especially for frms in high-tech and medium-tech regions. These outcomes have implications for European policies on competitiveness as frms embedded in regions without these technological and institutional circumstances are systematically worse of in terms of productivity, and catching-up is not obvious for such regional economies.