Proactive Industrial Development Strategies And Portfolio Analysis

The analytical concepts of security portfolio theory can be applied to measure a targeted industry's compatibility with the community's existing industrial base. The model introduced in Part II of this paper allows for the measurement of the trade-off between employment growth and employment instability. The basic premises underlying this application are that employment and income instability in a region is analogous to risk in securities markets and that economic growth is similar to the return on a security portfolio. It is also assumed that the community leadership values economic growth and wishes to minimize future employment and income fluctuations. The use of portfolio analysis to find the optimal industrial mix is limited by both empirical and theoretical considerations. The succeeding sections of this paper explore the extent and severity of the limitations, especially when portfolio analysis is applied to the preparation of a targeted industries list for a small region.