Document Type

Working Paper

Publication Date

2-19-2018

Document Number

Working Paper Number 2018-02

Abstract

Conventional wisdom indicates that economic specialization can promote economic growth, whereas economic stability is theoretically associated with diversified economies. This conflicting relationship between specialization and diversity has been questioned, as regional scientists have suggested that specialization and diversity can coexist in a regional economy and proposed the concept of diversified specializations. To test this proposition empirically, three Herfindahl Hirschman Indices measuring regional economic diversity were used to examine the relationship between economic structure and regional economic performance among 359 metropolitan statistical areas (MSA) in the contiguous U.S. The first index measures economic diversity across 87 three-digit North American Industry Classification Systems (NAICS) sectors for each MSA; the second index quantifies economic diversity among 51 clusters identified by Delgado et al. in J. Econ. Geogr. 16(1), 1-38 (2016); and the third index considers the effects of both industry and cluster diversity. This analysis confirms that industry diversity promotes economic stability and also demonstrates that cluster diversity contributes to both economic stability and growth. I thus conclude that regions can simultaneously pursue both high and stable economic growth.

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