AQUA BOOK 2015 - Page 31

DIVERSIFICATION VS. SPECIALIZATION HOW DIVERSIFIED IS SOUTH TEXAS? DIVERSIFICATION VS. SPECIALIZATION B ecause of the very nature of nonrenewable resources, an oil boom cannot last forever. With this in mind, an increasing number of local government officials have made economic diversification a community development priority. Other things being equal, a more diversified economy tends to be more stable over time as it is less dependent on the rise and fall of one individual industry. One popular measure of overall economic diversity is called the Entropy Index, which compares the shares of economic activity across all industries in an area against a benchmark of perfect diversity, or uniform distribution of employment or output across local industries. The size of a local industry can be measure alternatively by its share of local employment and its contribution to Gross Regional Product (GRP). GRP is the value of total production or income of a region. The accompanying column chart shows the five South Texas metro areas’ Entropy Indexes with a total of 21 NACIS 2-digit-level industrial sectors. Those indexes are expressed in relation to the case of perfect diversity, meaning that all industries are of the same size. For an economy with 21 industries, the Entropy Indexes for perfect diversity is 3.0 (3.0=ln(21)). For the five metro areas, a relative Entropy Index closer to one is more diversified economically. San Antonio, the largest metro area with GRP nearly $100 billion, is most diversified as its index score is the highest at 0.89. Likewise, its Entropy Index by employment is the highest at 0.85 relative to the case of perfect diversity. Conversely, smaller economies like Laredo tend to have lower scores, which indicate a less diversified economy. Corpus Christi is the second largest economy in South Texas, with GRP over $24.5 billion in 2014. However, in terms of output, it is less diversified than other smaller metro areas. In terms of employment instead, then Corpus Christi is comparable to San Antonio in diversity. Entropy Index Sources: Bureau of Economic Analysis, and author’s calculations. Annual Review of South Texas Economy 29