Industrial policy and differentiated regional diversifications: Evidence from Chinese cities

Diversification is important for regional development. This paper advances the literature on related diversification by proposing a more comprehensive analysis framework on the basis of product relatedness and complexity. Using three datasets, we quantify the relatedness and complexity degrees of manufacturing products in China and identify cities on four types of diversification trajectories. By linking the industrial policy literature with the diversification literature, we highlight the importance of tax holidays and ways to allocate subsidies to help cities to enter into new products. •We propose a comprehensive framework to study regional diversification by quantifying product relatedness and complexity.•We show Chinese cities follow four different type of diversification paths.•We link industrial policy and regional diversification literature.•We show tax holidays and a dispersed subsidy help Chinese cities to diversify.