Regional industrial structure, productivity, wealth and income distribution in German regions

For the impartial observer of German regions, differences in regional industrial structures and prosperity are quite obvious. On the one hand, there are regions characterised by different industries, firm structures and labour qualification profiles. On the other hand, some of these regions are prosperous, dynamic and growing in terms of inhabitants, labor force and income while others suffer from high unemployment, low tax base and an unsatisfactory income situation. The link between the two observations is mainly acknowledged by theories of a Schumpeterian origin as it has frequently been observed that different industries differ in their propensity for innovation. Once the rigid assumptions of standard economic theory are consequentially dropped, it becomes evident that the regional industry mix might have significant implications for the local income distribution as well. Depending on the mobility of different kinds of labour it will thereby also affect regional development in terms of population dynamics. The present study asks, whether these postulated differentiated relationships between industrial structure and socio‐economic fundamentals can be identified statistically and whether they depend on agglomeration effects. Therefore, a cross‐sectional estimation with observations on district level (NUTS 3) is carried out in a mediated moderation approach. This approach allows for the differentiation between direct and indirect effects and for the identification of conditional effects, depending, for example, on regions' remoteness. The analysis starts with the creation of eight factors that efficiently describe districts' industrial structures. The factors are consistent with the industrial innovation type taxonomy created by Pavitt. In the final model the regional industrial structure, as described by these factors, explains socio‐economic fundamentals that indicate the regions' productivity, its income distribution and its population dynamics.