Risk and Income Tradeoffs in Regional Policy: A Portfolio Theoretic Approach*

Abstract

Policy makers often try to raise a region's income by altering its industrial mix.However, such attempts to increase local income may have an adverse effect on the stability of the region's economy. In this paper, we develop single-, aggregate-, and multiregional portfolio models that can be used by policy makers to generate frontiers of riskhcome-efficient industrial mixtures for a regional economy. These portfolio models are modified for application to the tourist industry in six regions of Spain. In practice, we find that the introduction of bounds on the magnitude of sector rebalancing has a major effect on the model solutions.

MNEs and industrial structure in host countries: a portfolio analysis of Irish manufacturing

“…More recently, French and Sichel (1993), Goldberg and Levy (2000), McConnell and PerezQuiros (2000), Warnock and Warnock (2000) and Chandra, 2003 used it to study employment variability and the existence of growth-volatility tradeoffs. In the regional science literature, Conroy (1974) demonstrated its usefulness as a measure of diversity in regional production patterns, and subsequent researchers including Barth et al (1975), Brown and Pheasant (1985), Sherwood-Call (1990), Board and Sutcliffe (1991), Schoening and Sweeney (1991), Hunt and Sheesley (1994), Lande (1994) and Carlino et al (2003) refined the specifics of its application and brought it to bear on the study of cities, regions and states in the United States.…”

“…In the international business context, it takes time for new FDI policies to evolve into the desired manufacturing configuration. Board and Sutcliffe (1991) and Chandra (2003) show that imposing upper and lower limits on sectoral weights restricts the efficient frontier to a subset of its unconstrained counterpart, and is often located inside it. 5 Imposing constraints also ensures that all sectors are represented on the restricted frontier.…”

Reassessing the Links between Regime Type and Economic Performance: Why Some Authoritarian Regimes Show Stable Growth and Others Do Not

“…89 In particular, the locus of the points on the left side of the scatter plot appears to be a convex curve. 90 Using the data displayed 82 Board and Sutcliffe 1991;Chandra 2003;Conroy 1975;Siegel, Alwang, and Johnson 1995. Countries with higher sectoral diversity are expected to have lower volatility. To capture sectoral diversity, we calculated a Herfindahl index using shares of the output of agriculture, manufacturing industry, nonmanufacturing industry, and services, in GDP.…”

The regional portfolio of disruptions, protection, and disasters

“…Several authors have advocated this approach for tackling regional economic vulnerability is through diversification of the economic base-by adding new products, technologies, or markets, or by rebalancing the existing mix of exports (see e.g. Barth et al 1973;Board and Sutcliffe 1991;Siegel et al 1995). The complementary strategy is to strengthen levels of engineered and other protection for vulnerable activities and critical upstream and downstream transactions according to the public costs and social benefits involved (e.g.…”

“…Thus, given a target "safety factor" and required performance characteristics, it is possible to allocate the choice of materials, schedules, and so on, in an "optimal fashion" (see e.g Board and Sutcliffe 1991;Awerbuch and Berger 2003;Shinozuka and Chang 2004)…”