Sectoral Diversification as Insurance against Economic Instability

Jan Kluge

No 206, ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

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. I apply portfolio theory to the growth-instability properties of German districts. Furthermore, I define a comprehensive diversification measure and use Stochastic Frontier Analysis in order to estimate whether diversification allows regions to achieve more efficient growth-instability combinations, i.e., greater stability at given levels of economic growth. 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.

JEL-codes: L16 R11 R58 (search for similar items in EconPapers)
Date: 2015
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Related works:
Journal Article: Sectoral diversification as insurance against economic instability (2018)
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