Economic sectoral diversification: A case study of the Gauteng provincial region, South Africa

Abstract

From a theoretical point of view, a more diversified economy across all major sectors has more potential to grow and is more resilient to survive external shocks than more sectoral concentrated economies. The economy’s diversification is a process; in most cases, structural change is required through policy implementation. The primary aim of this study was to analyze the relationships between the level of diversity (Tress Index) across sectors of the economy, GDP per capita (a proxy for economic development), domestic investment, employment and exports. The Gauteng province was selected as the study region because this region is a leading economic region in South Africa and the African continent. A quantitative methodology used time series secondary data from 1993 to 2021, with the diversification index selected as the dependent variable. Interesting results were achieved, leading to a new theory in development economics. When a region experiences an economic down-swing, sectoral concentration occurs, while diversification across sectors occurs in an economic growth environment. A positive relationship has been identified between economic diversification and the predictive variables, including economic development, domestic investment, employment and export. A policy of increased diversification across all economic sectors is a viable economic development strategy developing countries should implement within an environment for growth and investment.