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This paper investigates the effect of related and unrelated variety on regional growth in West Germany. In particular, it analyzes the role of regional absorptive capacity and new business formation for these effects. It finds that West German regions benefit from both types of varieties. The positive effect of unrelated variety on growth is more pronounced in regions with higher levels of absorptive capacity in terms of research and development activities and with higher levels of new business formation. Such moderating effects cannot be found for related variety. [ABSTRACT FROM AUTHOR]

Innovation processes in emerging economies tend to differ from those in developed countries in that a larger share of firms absorb existing knowledge. The paper assesses how firms' absorptive capacity mediates the impact of global value chains on the innovation of handicraft exports in Yogyakarta, Indonesia. The study draws three conclusions. First, the incremental innovation of craft exporters demands specific but rather mundane absorptive capacities of firms, such as language abilities and capable departments. Second, and contrary to what might be expected, the study finds that the governance modes of global value chains do not significantly affect the level of innovation. Third, a group of traders have the highest level of innovation, the highest level of absorptive capacity, and they positively affect the innovation of suppliers. Overall, the findings show that knowledge diffusion is furthered within an emerging local innovation system. [ABSTRACT FROM AUTHOR]