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] ).
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