Skill relatedness: a dynamic approach to regional diversification in the UK

Exploring the factors driving new industrial activities is vital to regional economies. Regional diversification typically involves leveraging local capabilities related to those underpinning their existing industrial base to develop new industrial specialisations that branch out from established ones, which is captured by the concept of relatedness. Despite growing scholarly interest, our understanding of how relatedness drives regional diversification across varied regional contexts remains limited. This study addresses this gap by focusing on skills as the micro-foundations of regional capabilities and examining how skill relatedness across two distinct types: technical-digital (TD) and social-cognitive (SC), shapes the likelihood of new manufacturing specialisations across four types of UK regions. Our findings show that the marginal effect of TD skill relatedness on regional diversification is stronger in left-behind regions, and that SC skill relatedness further amplifies this effect. However, the magnitude and nature of these effects vary across regional contexts. These results enrich evolutionary economic geography debates by embedding insights into how different skill compositions and their interactions shape the place-based dynamics of regional diversification. We conclude by discussing policy implications for integrating regional skill policies within place-based industrial strategies and identifying avenues for future research.