The Lifecycle of Regions

Major economic transitions, even when they are disruptive, do not occur instantaneously but rather occur over time, as regions within a country change at different rates. Accordingly, these dynamics may be reflected in a geographic lifecycle with different regions characterized by different phases analogous to the industry lifecycle model. In accordance with this argument, this paper tests the hypothesis that regions can be characterized as evolving over a predictable and well-defined lifecycle: (1) an initial entrepreneurial phases where Jacobs externalities and inter-industry start-ups prevail; (2) a routinized phase where innovation takes place within top-performing incumbents; (3) a second entrepreneurial phase characterized by Marshall-Arrow-Romer externalities, leading to intra-industry start-ups in niches; and (4) a second phase of routinization, in which no further innovation takes place, but is instead a phase of structural change. Using data on 74 West German planning regions, we find compelling evidence of a spatial lifecycle.