Did Regional Economic Diversity Influence the Effects of the Great Recession?

Abstract

data for U.S. counties from 2005 to 2012, we test whether higher levels of economic diversity mediated the effects of the Great Recession via four measures of stability. Spatial spillover effects are modeled by the use of the spatial Durbin estimator with heteroscedastic errors. The data generally support the central hypothesis that higher levels of diversity within a county are associated with enhanced employment stability across all counties as well as subsets of metro and nonmetro counties. Results for wage stability, however, appear to contradict our other findings. We suggest that underlying labor elasticities can bridge these apparent contradictory results. (JEL R11, R12, O47)

A quantitative method for measuring regional economic resilience to the great recession

“…The concept of economic growth has historically been a central theme of macroeconomic research and has given rise to the sub‐discipline of growth theory (Romer, ; Solow, ). Conversely, the causes and nature of economic volatility and stability, while encompassing a fairly deep literature, have enjoyed less attention than economic growth theory (Deller & Watson, ; Wagner & Deller, ). The causes of variation in the rate of growth and in a system’s responses to shocks have also received relatively little attention but are central to the resilience discussion (Fingleton, Garretsen, & Martin, ).…”

Geographical scale, industrial diversity, and regional economic stability

“…The role of industrial diversity in regional economic development has been studied for a long time, with a recurrent interest in its relationship to regional economic stability (Conroy, ; Deller & Watson, ; Hong & Xiao, ; Jackson, ; Malizia & Ke, ; Trendle, ). This interest can be dated back as early as the Great Depression (McLaughlin, ; Tress, ), and it is hypothesized that the industrially diversified regions are associated with stable economic performance.…”

“…Likewise, industrial diversity and diversification research also attracts interests from policy makers and governments because of its impacts on regional economic development (Feser et al, ; Jackson, ; Wagner & Deller, ). More recently, scholarly research has focused on the relationship between industrial diversity and regional economic performance during the Great Recession in the late 2000s (e.g., Deller & Watson, ; Watson & Deller, ).…”

“…That said, variations in scale have not been incorporated into the literature, and the majority of current studies have used only a single geographical scale in quantifying economic structure. For instance, in the U.S. context, states (Attaran, ; Wagner & Deller, ), counties (Deller & Watson, ; Watson & Deller, ), Metropolitan Statistical Areas (MSAs; Conroy, ; Hong & Xiao, ; Malizia & Ke, ), and Economic Areas (EAs; Keinath, ; Porter, ) have been used. Beyond the U.S.‐based studies, the corresponding geographical units include metropolitan areas in Japan (Mizuno, Mizutani, & Nakayama, ), cities in China (Fu, Dong, & Chai, ), and Local Government Areas in Australia (Trendle, ).…”

“…For this paper, the third meaning of scale is used unless explicitly noted otherwise. In reference to economic diversity research, the spatial resolutions or scales can be counties (Deller & Watson, ), states (Attaran, ; Wagner & Deller, ), and MSAs (Hong & Xiao, ; Kort, ; Malizia & Ke, ). However, Jackson and Sonis () suggested that the choice of spatial scale is often decided by data availability and political considerations.…”