Do not put eggs in one basket: related variety and export resilience in the post-crisis era

Region's capability to retain economic growth and resist external shocks is important, particularly in the increasingly globalized economy with a plethora of political and economic uncertainties. This paper uses Chinese custom data to investigate the ways in which regional export resilience has been affected by related variety in the post-crisis era. The hypothesis is that regions with a large number of related industries are more vulnerable to external shocks due to the risk-spreading effect, where the negative effects of external shocks on certain industries may be easily transferred to other related industries. Empirical results support our hypothesis that cities with many related industries are often less economically resilient to external shocks and tend to face greater economic decline in the post-crisis era. We also find that industries with high levels of related variety are also vulnerable to external demand shocks.