State and local governments have been interested in attracting industry l o promote stable economic growth. Attention has generally centered more on increasing total regional employment than on attracting industry to increase employment stability. The purpose of this paper is to apply a portfolio theoretic approach to the investigation of the relationship between industrial mix and employment stability of a region. This approach permits the specification of the conditions under which a new or expanding industry will reduce fluctuations in regional employment. It will be seen, for example, that the industry with the least volatility in employment is not necessarily the one which will produce the greatest stability in total employment. As a result, this may not be the industry which should be encouraged to locate in the region.Section 2 presents a conceptual approach to the relationship between industrial mix and variations in regional employment, which is empirically illustrated in Section 3. The last section contains a summary and the conclusions. 2. A CONCEPTUAL APPROACH TO INDUSTRIAL MIX AND EMPLOY-MENT STABILITY Portfolio theory is well documented in the literature on financial asset selection (Markowitz [4, 51, Sharpe [S], Tobin [7]). Little has been done, however, in using this technique to examine the effect of industrial diversification on the stability of a region's employment (Conroy [2] ).
INTRODUCTIONPrevious studies of the demand for gasoline typically fall into either of two categories. The first category is the flow adjustment model which expresses gasoline consumption as a function of the real price of gasoline, disposable income, and gasoline consumption in the previous period.' The second category is the stock adjustment model.' The basic principle of this type of model is that consumers adjust their purchases of a good based on some desired level or holding of the stock. Various methods of cross-section, time series, and pooled crosssection time series estimation have been employed in the estimation of these models. In particular, Houthakker and Verleger [9], Kraft and Rodekohr [lo], and Mehta, Narasimham, and Swamy [14] have estimated pooled models using state data. Kraft and Rodekohr have estimated stock and flow models and derived an explicit relationship between these models and determined the superiority of the stock adjustment model over the flow adjustment procedure" In particular, the flow model does not explicitly capture changes in the average efficiency of the stock of automobiles. RIoreover, these models use state crosssections pooled into an aggregate national equation and therefore provide no regional implications.Our analysis compares price and income elasticities from stock adjustment models for each of the nine census regions. The models are estimated using annual temporal cross-section data at the state level of aggregation for gasoline consumption, gasoline price, income and the stock of automobiles. A random coefficient specification of each demand model is estimated for each of the nine
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