About Sector Diversification

There are both risks and rewards to economic diversification. States that concentrate their manufacturing activity in a single sector typically suffer higher volatility in employment and incomes over a business cycle and are also more likely to experience greater effects of structural changes to the economy involving a single sector. One potential benefit of low levels of economic diversification is that the resulting agglomeration economies often emerge in these highly specialized regions. As a consequence, policies that seek to diversify the economy are typically pursued in concert with efforts to strengthen the supply chain of existing industries.

We calculate each state’s diversification of manufacturing activity using the Herfindahl-Hirschman Index. We calculate the total share of income for each NAICS manufacturing sector at the 2-digit level, then add the squares of all 22 subsectors. We then rank each state from the most (No. 1) to the least (No. 50) diverse.

Sources: Bureau of Economic Analysis, North American Industrial Classification System (NAICS), and authors’ calculations.

2020 Sector Diversification

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Map

Table

State	Grade
Alabama	B
Alaska	F
Arizona	D-
Arkansas	C
California	F
Colorado	C
Connecticut	F
Delaware	C-
Florida	B-
Georgia	B+
Hawaii	D
Idaho	F
Illinois	C+
Indiana	C
Iowa	C-
Kansas	A
Kentucky	C-
Louisiana	D
Maine	C
Maryland	D+
Massachusetts	C-
Michigan	D
Minnesota	C
Mississippi	A
Missouri	B
Montana	C
Nebraska	D
Nevada	C
New Hampshire	D
New Jersey	F
New Mexico	D+
New York	B
North Carolina	B+
North Dakota	C
Ohio	B-
Oklahoma	C+
Oregon	D-
Pennsylvania	B
Rhode Island	A
South Carolina	B
South Dakota	C
Tennessee	C+
Texas	C
Utah	B
Vermont	C
Virginia	A
Washington	A
West Virginia	C-
Wisconsin	C
Wyoming	D

Center for Business and Economic Research - Ball State University

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2020 Sector Diversification