INTERINDUSTRY COVARIANCE PATTERNS - TOO UNSTABLE FOR PORTFOLIO VARIANCE ANALYSIS TO BE A USEFUL TOOL

Instability in the local economy has long been a problem that local po licymakers have sought to remedy, typically through diversification of the industrial base. Since the mid-1970s, portfolio variance analysis has held promise as a tool to assist regional policymakers in selecti ng target industries that would help stabilize the local cycle. Howeve r this approach typically makes use of patterns in historical data to identify stabilizing industries, involving the implicit-and fundamenta l-assumption that past interindustry patterns will continue. This arti cle investigates that basic assumption through examination of the inte rindustry patterns of one local economy, in the monthly employment dat a for 14 industries over a 34-year period.