Industrial Variety and Structural Change in Korean Regional Manufacturing, 1992-2004

There has been increasing concern about the roles of industrial variety, particularly related and unrelated variety, in adaptive response of regional economies to recessionary shock. Using South Korean regional manufacturing data around the 1997 Asian financial crisis, this paper investigates how differently related and unrelated variety affect intrasectoral and intersectoral structural change in regional economy. The empirical findings reveal that regions with higher related variety adapt to recessionary shock mainly through intrasectoral structural change, but that related variety diminishes the opportunity for regional economies to pursue intersectoral reorganization. However, unrelated variety makes up for this negative effect as it increases intersectoral structural change. This study sheds light on the complementary roles of related and unrelated variety in regional adaptability and path creation or diversion.