Industrial Structure and a Tradeoff Between Productivity and Economic Resilience

Abstract

Abstract The structures of regional economies play a critical role in determining both a region’s productivity and its resilience to shocks. We extend previous work on the regional occupation and skills structure by analyzing the effect of a region’s industry structure. We operationalize the concept of economic structure by constructing a network of interdependent economic components, employing ecological techniques of co-occurrence analysis to infer interactions between industries. For each U.S. metropolitan statistical area, we create an aggregate measure of economic tightness that captures the degree of interconnectedness among a region’s industries. We find that industry tightness, which we find is partly driven by rare industry pairs, is positively correlated with a region’s economic productivity, negatively correlated with a region’s change in productivity following the Great Recession. This study contributes to an understanding of the tradeoff between productivity and resilience, which is intended to help policy makers that face similar real-world tradeoffs.