Hypotheses on Supraregional Relationships and Technological Progress

In producing products, firms are part of production networks in which downstream firms purchase input components and resources from upstream firms. Given the abilities of modern transportation and communication technologies, firms may buy products from or sell products to firms in other regions. As such, the production networks may also span multiple regions (Whitford and Potter; 2007). Whether a firm does or does not have access to particular inputs or raw resources inevitably determines the products it can make and sell. The more inputs are required for the production of a product, the more likely it is that these inputs cannot only be acquired within the region. Hence, if firms can acquire inputs from firms in others region, the feasible products are in expectation more complex and more advanced.

In researching and developing the production of these artifacts (by gathering technological knowledge and creating capabilities), firms may collaborate with other firms. Regional recombination of technological knowledge is an efficient way to exploit technology, but sooner or later exhausts the regional innovation potential. To realize path-breaking innovations, firms may need ‘pipelines’ to firms in other regions to import technological knowledge which is alien to the region (Rallet and Torre 1999; Bathelt et al. 2004). If more or more diverse knowledge is required for an innovation (in our case, new production technology), the more likely it is that innovation collaboration is required. We thus expect that if required knowledge is more diverse, that the rate of transformation discovery increases if firms are able to collaborate across regional boundaries. Moreover, we expect that this also enhances technological progress in terms of the complexity and advancedness of artifacts produced.