Production space and regional industrial evolution in China

A growing literature on evolutionary economic geography concludes that regional industrial evolution is path-dependent and is determined by the preexisting industries. This study more accurately calculates the industry relatedness based on the co-occurrence approach to portray the production space of China’s manufacturing sectors and then examines the impact of industry relatedness on regional industrial evolution. The findings report that industry relatedness does underscore the regional structural change in China but shows significant regional differences in the evolution path. The coastal region has strong tendency of path dependence in its industrial evolution, while North West and South West break the path-dependent trajectory and transition into high productive sectors distant from their own production network. The results suggest that governmental policies can play a crucial role in creating new paths in the West. Institutions matter to allow the significant role of industry relatedness in driving regional industrial evolution.