Specialisation or diversification - which path works for which Australian regional towns?
Many regional leaders are keen to diversify their economies, but diversification is not always effective in increasing job numbers or wages.
Research prepared under the Regional Australia Institute’s Intergovernmental Shared Inquiry Program by UniSA looked into the impacts of economic specialisation and diversification on Australia’s mid-sized towns. Econometric analysis examined how growth varied across mid-sized towns over the years 2006, 2011 and 2016.
The analysis controlled for the confounding influence of several other explanatory variables, such as population density, geographic location and access to human capital. Overall, the analysis found that specialisation has a positive effect on population and labour force size, but a negative effect on wages; unrelated variety has a negative effect on wages; and, related variety has a positive effect on population and labour force size.
Controlling further for the structure of local economies the analysis found that: specialisation can benefit local economies that are dependent on manufacturing, transportation and/or education; unrelated variety can help insulate local economies that are dependent on sectors especially prone to volatility, such as mining and manufacturing; and related variety can benefit local economies that are dependent on service-based industries, such as tourism and/or education, that derive their demand from other sectors of the economy.
Dr Kim Houghton is Chief Economist at the Regional Australia Institute. Having worked on regional economic development in Australia for over 20 years, Kim has a passion for engaging, motivating, informing and connecting regional leaders and change-makers.