Economic Diversity in Appalachia Statistics, Strategies, and Guides for Action February 2014 Prepared for the Appalachian Regional Commission ECONOMIC DIVERSITY IN APPALACHIA CONTENTS List of Tables ...................................................................................................................... iii List of Figures ..................................................................................................................... iii About this Report .............................................................................................................. iv Executive Summary ............................................................................................................ v Introduction ........................................................................................................................ 1 Research on Diversity and Regional Development ............................................................. 3 Economic Diversity and Regional Stability ..................................................................... 3 Economic Diversity and Regional Growth ...................................................................... 4 Industrial Specializations and Regional Growth and Stability ........................................ 4 Summary ........................................................................................................................ 5 Appalachian diversity: A Statistical portrait ....................................................................... 6 Diversity is What, How, and Why ................................................................................... 6 Diversity is also Where ................................................................................................... 6 Measuring Diversity ....................................................................................................... 7 Applying the Measures................................................................................................... 8 Economic Diversity Across the U.S. and Appalachia ...................................................... 9 Urbanization and Specialization ................................................................................... 13 Diversity and Economic Outcomes............................................................................... 18 Diversity and Geography .............................................................................................. 20 Illustrative Examples of Diversity in Context ................................................................ 23 Diversity and Development Strategy in Appalachia ......................................................... 25 Case Study Selection .................................................................................................... 25 Case Study Findings ...................................................................................................... 26 Common Themes and Trends ...................................................................................... 38 Mutliple avenues for achieving diversification ............................................................ 47 Lessons for Development practice ................................................................................... 49 Growth Occurs through Specialization ......................................................................... 49 Diversification Strategy as Risk Assessment and Opportunity Capture ....................... 50 Regionalism Supports Diversification ........................................................................... 50 Diversification is Supporting the Fundamentals .......................................................... 51 Diversification Needs Information ............................................................................... 52 References ........................................................................................................................ 53 Appendix: Data and methods ........................................................................................... 55 ii ECONOMIC DIVERSITY IN APPALACHIA Base Data and Methods for Calculating Economic Diversity ........................................ 55 Measuring Industry-based Economic Diversity ............................................................ 56 Measuring Function-based Economic diversity ............................................................ 56 Measuring Occupation-based Economic Diversity ....................................................... 59 Measuring Knowledge-based Economic Diversity ....................................................... 59 Geographic aggregations .............................................................................................. 61 Presentation of Metrics ................................................................................................ 62 LIST OF TABLES Table 1: Economic Diversity by Region, 2012 ..................................................................... 9 Table 2: Economic Diversity by County Character, 2012 .................................................. 13 Table 3: Economic Diversity by Region, 2012 ................................................................... 16 Table 4: Economic Diversity by County Character, 2012 .................................................. 16 Table 5: Percent of Appalachian Counties with Particular Functional Specializations, 2012 .................................................................................................................................. 18 Table 6: Diversity by County Economic Status, Appalachia, 2012 .................................... 19 Table 7: Industrial Diversity and Employment Growth ..................................................... 20 Table 8: Ratio of County to Commuting Shed Economic Diversity by Region, 2012 ........ 21 Table 9: Illustrative Examples—Appalachian Economic Diversity and Outcomes, 2012 .. 23 Table A1: Functional Categories with Selected Industry Examples .................................. 58 Table A2: Illustrative Descriptions of Knowledge Clusters ............................................... 60 LIST OF FIGURES Figure 1: U.S. Industrial Diversity, 2012 ............................................................................ 10 Figure 2: Appalachian Sub-regions ................................................................................... 11 Figure 3: Distribution of Diversity, by Appalachian Region .............................................. 12 Figure 4: Distribution of Diversity, by Appalachian County Character ............................. 14 Figure 5: Rural-Urban County Types in Appalachia .......................................................... 15 Figure 6: Distribution of diversity, by Appalachian region (Index benchmarked to county character) .......................................................................................................................... 17 Figure 7: Distribution of diversity, by Appalachian County Character (Index benchmarked to county character) ......................................................................................................... 17 Figure 8: Functional Specializations in Appalachian Commuter Sheds ............................ 22 iii ECONOMIC DIVERSITY IN APPALACHIA ABOUT THIS REPORT This report is one of four documents prepared as part of an extensive analysis of economic diversity for the Appalachian Regional Commission by the University of Illinois at Urbana-Champaign’s Regional Economics Applications Laboratory and the Center for Regional Economic Competitiveness, with assistance from the RUPRI Center for Rural Entrepreneurship and EntreWorks Consulting. Project leaders were Edward Feser, Ken Poole, Mark White, and Geoffrey Hewings, with Troy Mix serving as Project Manager. Authors of this report were Edward Feser, Troy Mix, Mark White, and Ken Poole. Deb Markley and Erik Pages contributed to the case studies. William Cook and Erol Yildirim were primarily responsible for building the web tool. In addition to this report, the documents include a guide to the web tool (A Practitioner's Guide for Planning and Analysis with the Appalachian Economic Diversity Web Tool), a detailed synopsis of case studies (Case Studies in Economic Diversification in Appalachia), and a technical report detailing methods, data, and additional findings (A Statistical Portrait of Economic Diversity in Appalachia). All reports associated with the project can be found here: http://economicdiversityinappalachia.creconline.org/Report/. iv ECONOMIC DIVERSITY IN APPALACHIA EXECUTIVE SUMMARY Diversification is a worthy local economic development objective. Other things equal, diverse economies tend to be more stable because they are less dependent on single industries or firms. The broader mix of economic activities in a place means that decline in one sector may sometimes be offset by growth in another. At the same time, diversity does not guarantee faster growth, higher incomes, or more widely shared prosperity. Sometimes a community may appear economically diverse because a major economic growth engine—a large manufacturing plant, a mine, a military base—has closed, reducing the level of specialization. Dependence on one or a few sectors yields positive economic outcomes when those sectors are growing. Dependence is a source of vulnerability when key sectors find their competitive position threatened. Diversification is not a valuable strategy because there is a