As regions evolve, their economies become more complex, and they tend to diversify into related activities. Although there is a bright side to this diversification process in terms of economic development, there may also be a dark side to it, as it possibly contributes to regional inequalities. The paper uses data on industries and patents to analyse the diversification patterns of 283 regions in 32 European countries over the past 15 years. We find that only the most economically advanced regions have the opportunity to diversify into highly complex activities. These regions tend to focus on related high-complex activities, while lagging regions focus on related low-complex activities, creating a spatial inequality feedback loop. This pattern creates a wicked problem for innovation policy: the strategy needed to improve the innovativeness of the European knowledge system might disproportionately benefit regions that are already developed and foster disparities.
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