Technological agglomerations and the emergence of artificial intelligence start-up ecosystems in Europe

The emergence of new industries is shaped by intricate geographical dynamics influenced by multiple factors. Yet, the rationales underpinning the locational choices of AI-based startups remain insufficiently understood. Traditional explanations have largely emphasized agglomeration economies, but their applicability to the AI industry requires further examination. This study investigates the growth of the AI industry across seven major European regions, uncovering two distinct locational patterns associated with different stages of industry evolution. In the nascent phase, the industry benefits primarily from intra-industry co-location effects and knowledge spillovers, which help mitigate technological risks. As the industry advances, however, cross-industry linkages become increasingly important, playing a pivotal role in addressing commercial risks and sustaining development. Overall, the findings highlight the dynamic interplay between technological and commercial risks, offering new insights into the shifting rationales and spatial dynamics that shape the emergence of the AI industry. • AI industry emergence shifts from intra-industry clustering to cross-industry ties. • oKnowledge spillovers drive early AI growth but show diminishing returns at scale. • oCross-sector complementarities mitigate commercial risks in AI industry evolution. • oAI clusters are multi-scalar, combining local agglomeration with global linkages. • oIndustry emergence follows sequential, stage-specific entrepreneurial drivers.