Targeting Economic Diversification: An Application of Target MOTAD Procedures

Thomas R Harris,Chang K Seung,Rangesan Narayanan

doi:10.52324/001c.8528

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.

Highlights

AND BACKGROUNDDuring the 1980s and continuing through the 1990s, many states championed efforts to diversify their economies
The Target Minimization of Total Absolute Deviations (MOTAD) results were generated by using MOTAD mean growth rate as the target and setting the maximum negative deviations at the same level as in the corresponding MOTAD solution
If only negative deviations from a properly selected target generated risk, the last six MOTAD {Table 4) and Target MOTAD (Table 5) solutions are equivalent in risk

Summary

Introduction

AND BACKGROUNDDuring the 1980s and continuing through the 1990s, many states championed efforts to diversify their economies. State and local economic development authorities, aware of these structural changes, have attempted to position their local economies to benefit from these changes. Regions that have their economies in one or a few economic sectors have experienced large swings in economic activity. State and local economic development decision makers must balance state and/or local economic stability with growth. Given the desire of numerous state and local decision makers to stabilize their state and/or local economies while maintaining economic growth, the primary objective of this paper is to derive economic diversification plans that attempt to balance these conflicting goals

Objectives

Results

Conclusion