Related and unrelated diversification in crisis and prosperity

Authors: Zsolt Csáfordi*, Erasmus University Rotterdam, Károly Miklós Kiss, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, László Lőrincz, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, Balázs Lengyel, Centre for Economic and Regional Studies, Hungarian Academy of Sciences
Topics: Economic Geography
Keywords: product diversification, product co-occurrence, technological proximity, industry space network, dynamics of product portfolio
Session Type: Paper
Day: 4/4/2019
Start / End Time: 8:00 AM / 9:40 AM
Room: Diplomat Room, Omni, West
Presentation File: No File Uploaded


How does technological relatedness influence the portfolio of multi-product firms hit by external shocks? To answer this question, we look at the effect of product-specific demand shocks on product portfolios of firms in Hungary in the 2005-2012 period. We use the technological relatedness measure calculated from product co-occurrences in firms, following the revealed relatedness methodology. We find that production have become more cohesive in terms of technological relatedness if firms were exposed to demand shocks, whether these shocks affected their main or additional products. Evidence from firm-product level OLS panel regressions with firm fixed effects suggests that portfolio adjustment takes place both on the extensive and intensive margin: firms exposed to demand shocks are more likely to drop or downsize additional products not related to their main product and concentrate resources on related products. The results also stay robust in a more rigorous firm-main product fixed-effects framework.

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