Explaining the dynamics of relatedness: The role of co-location and complexity

Relatedness has become a key concept for studying the diversification of firms, regions and countries. However, studies tend to treat relatedness as being time-invariant or, alternatively, consider its evolution as exogenously given. This study argues that relatedness is inherently dynamic and endogenous to technological and economic developments. Using patent data, we test the extent to which relatedness between technologies developed along co-location and differences in technological complexity in 1980-2010. Our results show that co-located technologies are more likely to become related over time. Moreover, our results suggest that co-location and complexity of technologies are conducive to the intensification of relatedness over time.