The Moderating Effect of Absorptive Capacity upon Related and Unrelated Variety vis-a-vis Regional Growth - The Case of Swedish Regions

Abstract: Empirical evidence for the growth effects of the concepts of related- and unrelated variety have been inconclusive since the introduction in 2007. This thesis contributes to the field by suggesting how the concepts of related- and unrelated variety may be moderated by the absorptive capacity found in a region. Absorptive capacity is suggested to work as a diffusion mechanism in relation to related- and unrelated variety. A panel ordinary least-squares (OLS) regression model was introduced to assess the effects empirically for the 21 Swedish counties between 2005 and 2015. I find related variety to have positive effects and unrelated variety negative effects on both regional GDP growth and employment growth. Absorptive capacity did moderate the negative effects of unrelated variety and the positive effects of related variety. These results provide implications for regional development and the smart specialisation strategy.