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Diversity of industrial structure and economic stability: evidence from Asian gross value added

Kurt Hafner ()

Asia-Pacific Journal of Regional Science, 2020, vol. 4, issue 2, No 7, 413-441

Abstract: Abstract The paper provides evidence of convex growth-instability frontiers for 19 Asian countries based on the shares of different economic activities in gross value added between 1991 and 2016. Numerical simulations of gross value added shares show that Asian industry portfolios in 2014 were below the unbounded efficient frontier defined by Markowitz, and that rearranging the shares of economic activities leads to efficiency gains through higher income and lower output volatility. The data show that gross value added in Asian countries in general, and in Eastern Asia in particular, are contributed mainly by “other activity” and “transport” sectors, while optimal industry portfolios in Southern Asia and Southeast Asia are found to be more diversified. Stochastic frontier analysis confirms convex growth-instability frontiers and points to differences in labor growth rates and industrial diversification as the main sources of inefficiency. The results are robust to model specifications and data restrictions.

Keywords: Economic activities; Regional growth; Economic instability; Portfolio theory; Stochastic frontier analysis (search for similar items in EconPapers)
JEL-codes: C60 O11 R11 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s41685-020-00152-w

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