Economic diversity is about a region’s mix of economic activities. If you don’t know what this term means or why it’s important, we’ll explore this topic in greater detail in the sections below.
What is Economic Diversity?
A good definition of economic diversity is the “region’s range of economic activities.” The region can be a country, city or county. These activities help the region generate income and opportunities for locals, so it is a metric that is important to know and understand.
Investments in regions will also rely on strong economic diversity.
Regions can include entire countries. If a country is rich in diversification, they produce many goods and don’t rely on a single good for the majority of their revenue.
Economic stagnation is rising around the world, and consumer trends threaten countries that rely on a small number of exports to make up the majority of their revenue. Poor countries that rely on minerals often struggle to grow and prosper because they cannot diversify their exports.
When the mineral that the country relies on is in less demand, it leads to significant growth problems and financial issues for governments and workers.
Examples of Economic Diversity
Chile is a prime example of a country with economic diversity. The country has over 2,800 products that ship to 120+ countries. However, some countries can still have hundreds of products that they produce, yet they rely on certain commodities more than others.
Kazakhstan exports over 500 products, but the country has had difficulty expanding these products to improve exports because they rely heavily on its oil exports.
Many countries in the world rely on certain resources for the majority of their workforce. The trend is akin to the coal industry, which thrived for a long time before other sources of fuel overtook them.
While coal may still be a major revenue driver for some countries, prices have fallen and demand along with it.
For many of these regions, economic diversification would allow for:
- Less economic risk from one main export
- Greater flexibility
- Ability to grow even if a certain good is no longer in demand
Diversified economies further benefit from new businesses and work to support many businesses along the way. A single good can improve the demand for other services and businesses.
For example, farmers help supply grocery stores with food, help fill food pantries and have goods that end up in restaurants or on consumer tables.
All of these businesses stem from food production.
The same chain of businesses exists in most industries, allowing for a diversified economy that relies on multiple goods and services to grow. The benefits of economic diversity include:
- Ability to withstand market fluctuations
- Easier time dealing with economic issues
- Prevent massive layoffs
Countries that want to improve their ability to withstand economic downturns can rely upon economic diversity to help. Working with local governments can further help countries maintain strong exports because certain regions in a country can be rich in goods that others are not.
California was the source of the “gold rush,” but many of the small towns don’t exist today because the rush came to an end. Economic diversification could have helped these towns persist after the rush.