Knowledge Intensive Business Services, Knowledge Spillovers and Regional Growth. Sub-project 1: Knowledge Spillovers and Regional Development – Which Economic Structure Optimises Growth?

The present report is part of a larger project on knowledge spillovers, knowledge intensive business services and regional growth in Austria. Based on regionally disaggregated data on Austrian Labour Market Districts, our paper provides evidence on a research question which is highly relevant for structural policy in Austria and beyond: is specialisation or diversity in the economic structure the main driver of employment growth? Our results militate in favour of a policy that fosters diversity and a further diversification of the regional economic base. However, within this broad sectoral setting clear vertical priorities seem to enhance growth. Thus, horizontal policy measures should be complemented by targeted interventions. Their focus should be thematic (i.e., inter-sectoral) and not sector-specific. In addition, our empirical evidence indicates that successful diversification is most likely if new economic activities arise in limited technological and cognitive distance to existing strengths.