Regional Economic Fluctuations: Portfolio Variance And Industrial Instability Across Metro Areas

James A. Kurre and Clifford H. Woodruff
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James A. Kurre: Pennsylvania State University at Erie
Clifford H. Woodruff: Bureau of Economic Analysis, U.S. D.O.C.

The Review of Regional Studies, 1995, vol. 25, issue 2, 159-186

Abstract: Portfolio variance analysis is a useful tool for examining both a region's industrial diversification and its cyclical instability. Ideally, it can guide policy makers in choosing industrial targets that will reduce regional instability. However, for portfolio variance to be a useful tool, policy makers must be able to predict the effect of a new industry on the local economy. This paper applies portfolio variance analysis to 17 American MSAs in order to determine the cyclical characteristics of industries and to determine if they are consistent across regions. We also examine regional business cycle amplitude and how it relates to a region's industrial structure. In the process, we identify a technique for measuring the contribution of each industry to an MSA's instability and for separating that effect into portions due to the size of the industry and its cyclical behavior.

Date: 1995
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