| The purpose of this study is to address geographic-based differences in regional economic activity as measured through employment. Economic conditions are transmitted from one region to another through the flows of goods, services, and factors of production. Some regions are more competitive at producing goods and services and have different concentrations of industry types. The mix of industries in a region and their relationships to other regions and the rest of the world are the primary causes of fluctuations in economic activity. Industries are affected by local, national, and global economic conditions; and adjustments in employment occur in response to changing conditions, including long-term trends, cycles, and erratic corrections.;Portfolio theory is applied to develop an employment beta that represents the relationships between regional and national economies. Chow tests indicate that this beta is unstable over time. This instability is traced to periods of global economic turmoil and to the adjustment of industries to new economic conditions. A weighted-average employment beta is formed from the contributions of individual industries to the region's economic base. This beta can be formulated on an ex-ante basis using relationships between industries and economic fundamentals.;Understanding the causes of industry volatility and regional economic activity is important for decision makers in both public and private sectors: state and local governments which are seeking to expand their economic bases, companies which are looking for new locations, investors who are seeking properties that provide a superior risk-return trade-off, and mortgage lenders and insurers who are trying to better understand default rates, among others. |
