Industrial embeddedness and regional economic resistance in Europe

Abstract

We study the role of local industrial embeddedness (the share of regional interindustry economic activity that is anchored to a region) on regional resistance (the difference between pre- and postcrisis employment) to the 2008 Great Recession (GR) in EU and UK NUTS-2 regions. The recession had profound effects in regional economies, which showed diverse performance based on their capacity to absorb the shock. The concept of economic resilience has been brought to the center of attention with several contributions exploring its determinants. However, the impact of the embeddedness of local economic systems in terms of sales and supplies has been largely unexplored. We use regional input–output tables to approximate the embeddedness of local economies, and we use fixed-effects and quantile regressions to test its relationship to regional resistance between 2008 and 2011. We find that during the GR, regional industries opted to change input rather than output markets. Additionally, embeddedness has a curvilinear relationship to regional resistance that varies across the distribution of regional resistance performance. Finally, at the industry level, we find regional embeddedness to be important to the resistance of manufacturing and financial and business services, and sectoral embeddedness to matter more for the resistance of construction and wholesale, retail, and information technology. Our findings highlight nuances that policy makers should be aware of in planning for resilience.