The Interplay Between AI and Technological Relatedness in Shaping Regional Innovation in Europe

Francesco D'Alessandro, Enrico Santarelli and Marco Vivarelli ()
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Francesco D'Alessandro: Department of Sociology and Business Law, University of Bologna

No 18817, IZA Discussion Papers from IZA Network @ LISER

Abstract: This study examines how regional technological relatedness and local AI knowledge influence regional innovative activity, as measured by patenting activity. Using a novel three-way longitudinal dataset and leveraging a deep learning-based identification of AI patents, we show that two broad mechanisms operate in parallel. First, in accordance with the extant literature, technologies that are cognitively close to a region's existing patent portfolio enjoy higher patenting activity, confirming that relatedness remains a strong and persistent predictor of innovative output. Second, local AI endowments are positively associated with patenting across technological fields, even after conditioning on relatedness, indicating that AI plays an enabling and cross-cutting role in a given regional innovation system. Moreover, the interaction between relatedness and AI turns out to be negative and statistically significant, implying that AI attenuates the extent to which local innovative efforts depend on the technology's proximity to the regional portfolio. In sum, AI appears to enhance overall local innovative activity while reducing its reliance on pre-existing regional knowledge structures.

Keywords: Artificial Intelligence; AI; technological change; regional innovation; relatedness (search for similar items in EconPapers)
JEL-codes: O31 R11 (search for similar items in EconPapers)
Date: 2026-07
New Economics Papers: this item is included in nep-eur and nep-sbm
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Working Paper: The interplay between AI and technological relatedness in shaping regional innovation in Europe (2026)
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