Are Diverse Economies Better? Creating and Evaluating an Economic Diversity Measure at the County Level

Abstract of research: Classical economists such as Adam Smith and David Ricardo advocated for specialization and trade to promote economic growth. Conversely, more recent theories of economic complexity may suggest more diverse, less specialized economies are indicative of greater productive capabilities, greater growth and resilience to external shocks. This paper applies the theories of economic complexity to sub-national, county-level data in California. I created an economic concentration index using employment sectoral data and used fixed-effects panel regression models to test hypotheses regarding economic concentration and per capita income growth and poverty rates. I find that that while there is no statistically significant link between employment diversity and income growth and poverty at the county level in California, there does however, seem to be a link between some specific sector shares and per capita income growth rates.