Will product relatedness make regional economy more complex? An empirical study based on China

In recent years, China, as an important engine of economic transformation and development in Asia, has achieved remarkable results in enhancing regional economic complexity. Based on the theory of evolutionary economic geography, this paper explores the endogenous mechanism of regional economic complexity evolution from the perspective of product relatedness. This paper innovatively divides product relatedness into supply-side relatedness and demand-side relatedness, and utilises the probabilistic co-occurrence method to quantitatively measure the two. On this basis, it explores the differences in the impact of the two on regional economic complexity and reveals the reasons for the differences. It is found that (1) during the period 2000–2016, the economic complexity at the prefecture-level city scale in China shows a distribution pattern of high in the east and low in the west. Demand-side relatedness among products is more prevalent than supply-side relatedness. (2) Supply-side relatedness promotes regional economic complexity, while demand-side relatedness inhibits regional economic complexity. (3) The differential impact of supply-side and demand-side relatedness on regional economic complexity is realised through the product dynamic mechanism, innovation dynamic mechanism and market competition mechanism.