Interregional technological relatedness and industrial innovation: An analysis based on China’s manufacturing industry

Geographic proximity arising from industrial agglomeration can promote firm innovation and thereby industrial development. Scholars of evolutionary economic geography further propose that technology proximity is more important than geographic proximity, which provides essential theoretical support for explaining the role of interregional industrial linkages in local industrial development. However, the existing literature mainly focuses on the technological relatedness within regions but lacks research for interregional relatedness, especially the effects of interregional technology relatedness on regional innovation. Based on the input-output panel data of 2002, 2007, and 2012 from 30 provinces of the mainland of China, this study used the gravity model and cross- entropy method to fit the interprovincial trade flow matrix of the industries and further computed the index of intraregional and interregional technological relatedness. This study then used a two-way fixed effect model to examine the effects of intraregional and interregional technological relatedness on industrial innovation based on the data of 16 manufacturing sectors in 30 provinces in 2002, 2007, and 2012. First, the results show that the degree of interregional technological relatedness of industries has been strengthened, especially the linkages within city agglomerations. Second, interregional technological relatedness of industries has a positive effect on industrial innovation, but local technological relatedness of industries would weaken this positive effect. Therefore, the government should remove institutional barriers and encourage the inter- or intraregional industrial linkages that promote regional industrial innovation.