Toward an improved portfolio variance measure of regional economic stability

Abstract

The portfolio variance has gained popularity as a tool to evaluate alternative strategies that promote regional economic stability. As it is commonly applied, however, the portfolio variance has several problems that limit its appropriateness for regional economic analysis. There are several implicit assumptions about the relationship between structural change and stability, and about the emphasis on aggregate region-wide stability that should be recognized when using the portfolio variance approach to predict the impact of alternative diversification strategies. These assumptions and their implications are discussed, and an improved portfolio variance measure of regional economic stability is presented. -Authors