Shock absorber and shock diffuser: the multiple roles of industrial diversity in shaping regional economic resilience after the Great Recession

Given that little attention has been paid to the multiple and even conflicting roles of related variety and unrelated variety in shaping regional economic resilience, this study develops a framework that incorporates the industrial portfolio effect, the risk spreading effect, the labor matching effect, and the knowledge spillover effect to analyze the relationship between industrial diversity and economic resilience. Based on the developed framework, spatial econometric models are then employed to analyze the impacts of related variety and unrelated variety on economic resilience in U.S. Metropolitan Statistical Areas (MSAs) after the Great Recession. The empirical results from the estimation of the spatial Durbin error models show that a high level of related variety tends to undermine MSAs' capacity to adapt to external shocks with respect to the 1-year period 2009-2010, the 3-years period 2009-2012, and the 5-years period 2009-2014, suggesting that due to the risk spreading effect, related variety acts as a shock diffuser in response to the crisis. By comparison, the role of unrelated variety as a shock absorber is significant in terms of direct effect, and the spatial spillovers of unrelated variety on economic resilience cannot be ignored with respect to the 3-years period 2009-2012 and the 5-years period 2009-2014.