Persistence and Change of Regional Industrial Activities: The Impact of Diversification in the German Machine Tool Industry

The paper investigates the stability and change of regional economic activities in the long run. As the unit of analysis, we selected the machine tool industry in West Germany for the years 1953--2002. We spot a strong variance in the activities between different regions. These differences are relatively stable over time, and the regional activities are rather path-dependent. Nevertheless, the paper also identifies changes in the level of activities. As the main driving factors for these developments, we examine the effect of changing regional degrees of diversification over time. We find that those regions which generally broaden their scope of activities have a higher likelihood to grow than regions which are specializing. Furthermore, diversification into totally new technological and product fields is only beneficial under specific circumstances based on technological and market developments. Hence, in most cases, a broad diversification is superior to one focusing on new state-of-the-art technological fields.