**2. Resilience**

Resilience is a complex and multifaceted concept that has been employed to describe how an entity responds to shocks and disturbances by several disciplines (psychology, management, economics, physics, engineering, and ecology).1

In strategic management literature, some scholars (among others, Lengnick-Hall and Beck, [9]) refer to a firm's ability to cope with unforeseen disturbances as resilience capacity. According to the capability-based [10] and the resource-based theory of the firm [11, 12], resilience is defined as the unique blend of cognitive, behavioral, and contextual properties that increase a firm's ability to respond to sudden environmental changes. In this framework, innovation, others thing being equal, is one the key determinants of firm resilience. In this context, Geroski and Walker [13] empirically shows that during the recessionary phase, the growth rates of non-innovative firms fall much more than those of innovative companies. This is arguably because innovation immediately gives rise to competitive gains. Furthermore, the innovative processes involving firms' ability to continuously transform their endogenously created competencies and knowledge into viable products improve firms' internal capabilities, making them more flexible and adaptable.

<sup>1</sup> The notion of resilience originates in research on child behavior. In this specific context, it indicates some children's ability to stay positive, focused, flexible, and proactive in a stressful environment.

The meaning of "resilience" has been the subject of a lively debate, also, among economic scholars. In the recent economic literature, indeed, there have been several ways of defining economic resilience.

According to mainstream economists, it assumes the meaning of "engineering resilience." This stream of research focuses on the stability of a system near the equilibrium or the steady state [14, 15]. Therefore, resilience is defined as the ability of a system to return to a preexisting stable equilibrium state following a disturbance and takes the literately meaning of the Latin verb "resilire" that means to leap back or to rebound. Economies, according to this theory, are characterized by a self-equilibrating mechanism: the so-called "invisible hand" that evokes Adam Smith's work. Every time that a disturbance moves the market away from its equilibrium, the system activates a compensating mechanism that brings back the organization to its original configuration. Every economy is resilient because of its innate structure. Thus, a lack of resilience is a signal of the presence of "market failures" or "frictions," and the local environment does not play any role in explaining resilience.

Ecological resilience, on the contrary, refers to "the capacity of a system to absorb disturbance and reorganize while undergoing change so as to still retain essentially the same function, structure, identity and feedbacks" ([16], p. 2). Resilience was originally introduced in this field of research by Holling [17] as a concept that aims at studying the capacity of ecosystems with alternative attractors to persist in the original state during perturbations. Thus, this definition of resilience, different to the previous one, incorporates the idea that the reorganization of a system hit by a shock involves some degree of transformation. In particular, if the disturbances break the ceiling of the local economy's capacity to absorb the shock, the system does not bounce back to its previous equilibrium, but it moves to another equilibrium. Therefore, the definition of ecological resilience admits the possibility that local economies can evolve and reach multiple equilibria. Nevertheless, the environment in which the economic agents are embedded is not considered as a key explanatory variable of the local level of resilience.

Recently, a new interpretation of the concept has gained traction in the evolutionary economic geography literature: adaptive resilience. Simmie and Martin [3] define it as "the ability of a system to undergo an anticipatory or reactionary reorganization of form and or function to minimize the impact of a destabilizing shock" (p. 6). In context, resilience involves the capacity of the system to recover from an exogenous disturbance as well as the ability of its industrial and technological structure to evolve by continuously creating innovative growth paths. Following this line of inquiry, resilience is about the regional ability to continuously create and recreate an innovative process that allows the local economy to be more adaptable and flexible to be able to face external and unforeseeable shocks. It can also be considered as the ability of the regions to take advantage, during the recessionary phase, of their local specificities to bounce their economies forward. This idea is sharply at odds with the argument of the engineering resilience definition that the system bounces back to the pre-crisis equilibrium conditions. Following a Schumpeterian approach, the adaptive resilience conceptualization foresees, instead, that economic shocks may trigger economic agents to innovate and therefore to push the system to evolve. In this context, resilience is considered as a process that involves transformations rather than a recovery to an (pre-crisis or new) equilibrium state [3]. This need for economic renewal is felt more pressing in times of crises [4].

In his 1947 essay, Schumpeter2 already hypothesized that all changes in factor markets as much in the levels of the aggregate demand have a role in pushing firms

<sup>2</sup> See ref. [18].

to try to innovate and that the introduction of new technologies alters a system's intrinsic features.

The definition of adaptive resilience recognizes the importance of the geographical area in which the external shock occurs that, with its unique and nonreplicable characteristics, becomes the real unit of analysis. The context in which the economic system is embedded does not only represent the platform through the production and all the economic activities are organized. However, its intrinsic features, historically and sociologically determined, encourage (or discourage) the creation of resilient systems based on the continuous interaction among all economic actors of the local society. The notion of adaptive resilience is rooted in an evolutionary economic geography perspective. According to Schumpeter [19], indeed, the intrinsic characteristic of the system determines the ability to innovate. Thus, the ability of regions to face economic downturns is the result of the collective effort to react creatively to the shocks [8].

The notion of adaptive resilience is also influenced by complexity economics. Local economies, according to the literature (among others, [20]), can be seen as composite and multifaceted complex systems. These organizations are, indeed, composed by numerous heterogeneous firms, workers, and institutions, each one with complex connections and links to the "external environment." Complexity theories portray the economy not as a deterministic and predictable mechanism, but as a dependent, organic process that is always evolving. Complexity sees economies as "systems comprising large numbers of elements, the results of which are modifiable as a result of environmental interaction" ([21] p. 11). Therefore, local systems and society itself can be seen as complex adaptive systems. Society, indeed, is composed of many elements, and the interactions between them are crucial to determining each element's behavior.

In the recent literature, many relevant conjectures have emerged to understand what the determinants of adaptive resilience are. Simmie and Martin [3] suggest that "creative and flexible response to shocks depend on the innovative capacity of local firms, on entrepreneurial capabilities and new firm formation, institutional innovation, access to investment and venture capital, willingness of workers to reskill and similar factors" (p. 33). Unsurprisingly, given the Schumpeterian root of evolutionary economics, it emerges that innovation and innovative entrepreneurships are among the key determinants of adaptive resilience. Back to 1939, Schumpeter, in his book "Business Cycles" [5], already hypothesized that during the phases of economic depression, innovation is the key driver of recovery. In this book, by using both statistical and historical analyses, he identified a four recurring phases that characterize the evolution of capitalistic economies: prosperity, recession, depression, and recovery. His results showed that booms are due to technological novelty or other innovations whose implementations at first seem to promise high profits. After a while, more and more companies copy the strategy of the pioneer firms until the point in which no one earns any more competitive gains because of the introduction of the innovative activity. Thus, recessionary cycle begins, contributing to sweep away old unproductive activities through *"gales of creative destruction."*

Schumpeter in 1947 argued that innovation not only takes place as a special form of reaction to unforeseeable shocks but is also the result of positive feedback occurring in the interactions between and among firms and the intrinsic characteristic of the system in which they are embedded [8].

In this framework, entrepreneurship also assumes a key role in fostering resilience. According to Schumpeter Mark I conceptualization, indeed, the entrepreneur is

the economic agent who, by creating a new venture, can spill innovative knowledge within the region. Moreover, he can actively contribute to the regional process of adaptation by identifying and capturing new market opportunities, converting new knowledge into commercial products, and creating new job opportunities. Following this line of inquiry, Martin [2] argues that adaptive resilience depends on a mix of factors including entrepreneurship, the firms' willingness and ability to absorb or trigger change, and the technological and skill endowments of the region. Other studies (among others, [2, 22, 23]) stress the role of technological or knowledge base variety in shaping regional economies' abilities to face external shock.

According to Boschma [4], resilient regions are the ones able to overcome the trade-off between adaptation and adaptability, as embodied in their technological (related and unrelated variety) structures. In this context, adaptation concerns specializations within already existing paths, while adaptability is about creating new paths of growth by recombining old and new ideas.

Adaptive resilience concerns a restless process of transformation rather than a return to pre-crisis equilibrium. This is rooted in a system's ability to take advantage of an expected event to create new growth paths. In this framework, the characteristics of the system, in which the agents are embedded, play a fundamental role in shaping the ability of the economies to react by innovating [24].
