The competences of firms are the backbone of economic complexity

CSC Working paper n.3 2018

Corresponding author: Tullio Buccellato

This article studies patterns of diversification of products and accumulation of competences both at firm and province level (NUTS 3) in Italy. The analysis starts from the perspective of firms, which implement diversification as a strategy to grow on the market through the expansion of the internal knowledge-base. Results show that growth goes hand in hand with diversification. However, diversification is difficult to be achieved and the majority of firms remain specialized in single good productions. On impact, diversification is accompanied by a loss in efficiency, especially when it comes to diversification in unrelated classes of products. Diversified firms exhibit portfolios of less ubiquitous goods, suggesting that sophistication requires enhanced levels of competences. This result holds also for provinces. The analysis continues looking at the impact of economic complexity on the prosperity of the Italian provinces and shows that more complex economic fabrics are associated with higher levels of value added per capita. Economic complexity evolves following a self-strengthening path, as proximity with original core competences is key to acquire new ones and more diversified economies are naturally more likely to catch new production opportunities. This study contributes to the analysis of heterogeneity of the performance of firms and sheds light on how path dependency in the accumulation of competences is one of the key factors at the roots of the gap in development across territories within countries.

JEL Classification: L25; O25; O11; O12

Keywords: Diversification; Economic complexity; Heterogeneity; Competences; Knowledge; Innovation.