Drivers of Transformation and Recovery from Shrinking

Abstract: To understand the mechanisms of economic resilience, we have studied how sectoral proximity relates to the regional capability to transform and recover from a shrinking crisis. Through a comparative study of Irish regions, a proximity analysis provided evidence that the majority of new sectors in the recovering region developed in proximity to the region’s leading sector. This leads to the conclusion that existing sectors in an economy may through proximity promote the entry of new sectors and that such a sectoral micro-transformation is in turn promoted by a large sectoral variety in the economy. Thus, this study provides an empirical illustration of a specific mechanism driving transformation.