Targeting economic diversification: An application of target MOTAD procedures

Abstract

With rapid change in national, state, and local economies, many economic development agencies and practitioners have attempted to diversify state and local economies to minimize the variability of state and local economic activity. However, minimizing variability may reduce expected economic growth, which may run contrary to the desires of state and/or local officials. This paper applies Minimization of Total Absolute Deviations (MOTAD) and Target Minimization of Total Absolute Deviations (Target MOTAD) for economic diversification plans. MOTAD procedures; which are a linear programming algorithm for portfolio analysis, minimize positive and negative deviations from mean growth rates. Target MOTAD, unlike portfolio variance and MOTAD procedures, minimizes only negative deviations from targeted economic growth rates. Economic diversification plans derived from MOTAD and Target MOTAD procedures are compared and contrasted.