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Sectoral diversification as insurance against economic instability

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  • Jan Kluge

Abstract

This paper examines the extent to which sectoral diversification can act as an insurance mechanism against fluctuations in regional gross value†added growth rates. Portfolio theory is applied to the growth†instability properties of German districts. Furthermore, a comprehensive diversification measure is defined. Stochastic Frontier Analysis is deployed in order to estimate whether diversification allows regions to achieve more efficient growth†instability combinations. The results confirm that diversification does generate such effects. Spatial interactions do also play a role: The effects are less pronounced for regions whose economic performance is mainly driven by the surrounding regions.

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  • Jan Kluge, 2018. "Sectoral diversification as insurance against economic instability," Journal of Regional Science, Wiley Blackwell, vol. 58(1), pages 204-223, January.
    • Handle: RePEc:bla:jregsc:v:58:y:2018:i:1:p:204-223
    DOI: 10.1111/jors.12349
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    2. Jan Kluge & Sarah Lappöhn & Kerstin Plank, 2023. "Predictors of TFP growth in European countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(1), pages 109-140, February.
    3. Jan Kluge, 2018. "Eine diversifizierte Wirtschaft als Versicherung gegen Krisen," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 25(05), pages 21-26, October.
    4. Kim, Kyumin & Reimer, Matthew, 2024. "Fisheries Diversification and Local Economic Stability: Evidence from Alaskan Fishing Communities," 2024 Annual Meeting, July 28-30, New Orleans, LA 343874, Agricultural and Applied Economics Association.
    5. Bigerna, Simona & Bollino, Carlo Andrea & Polinori, Paolo, 2021. "Oil import portfolio risk and spillover volatility," Resources Policy, Elsevier, vol. 70(C).
    6. Xin Mai & Roger C. K. Chan, 2020. "Detecting the intellectual pathway of resilience thinking in urban and regional studies: A critical reflection on resilience literature," Growth and Change, Wiley Blackwell, vol. 51(3), pages 876-889, September.
    7. Kurt A. Hafner, 2020. "Diversity of industrial structure and economic stability: evidence from Asian gross value added," Asia-Pacific Journal of Regional Science, Springer, vol. 4(2), pages 413-441, June.
    8. M. Yu. Malkina, 2022. "The Resilience of the Russian Regional Economies to the 2020 Pandemic," Regional Research of Russia, Springer, vol. 12(3), pages 309-320, September.
    9. Marina Malkina, 2019. "How Change in Industry Mix Can Improve the Financial Performance of Regional Economies: Evidence from the Portfolio Approach," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 67(6), pages 1561-1575.
    10. Marina Yurievna Malkina, 2018. "Instability of Financial Return of Regional Economies and Its Determinants," Spatial Economics=Prostranstvennaya Ekonomika, Economic Research Institute, Far Eastern Branch, Russian Academy of Sciences (Khabarovsk, Russia), issue 3, pages 88-114.
    11. Raphaelle G. Coulombe & Akhil Rao, 2023. "Fires and Local Labor Markets," Papers 2308.02739, arXiv.org.
    12. Kluge, Jan & Lappoehn, Sarah & Plank, Kerstin, 2020. "The Determinants of Economic Competitiveness," IHS Working Paper Series 24, Institute for Advanced Studies.

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    More about this item

    JEL classification:

    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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