The Impact of Cluster Diversity on Economic Performance in U.S. Metropolitan Statistical Areas

Abstract

Conventional wisdom indicates that economic specialization can promote growth, whereas economic stability is associated with diversified economies. This conflicting relationship between specialization and diversity has been questioned, as regional scientists have suggested that specialization and diversity can coexist in a regional economy and proposed the concept of diversified specializations. To test this proposition empirically, two Herfindahl–Hirschman Indices were used to examine the relationship between economic diversity and economic performance among 359 metropolitan statistical areas in the contiguous United States. The first index measures industry diversity across 87 three-digit North American Industry Classification Systems sectors, and the second index quantifies cluster diversity among 51 economic specializations. This analysis confirms that cluster diversity contributes to both stability and growth, and regions can simultaneously pursue both high and stable economic growth.