Economic diversification can mean different things depending on the context. This process of diversification has taken many forms. A diversified economy creates a sustainable cycle of economic activity where businesses continually feed off of one another and grow larger as the economy grows. Economic diversification refers to the expansion of economic activity into different sectors, often through government directives. Pdf on aug 25, 2017, clovis freire and others published economic. A diversified economy is one that is based on more than one thing. As more and more businesses open their doors, it leads to the growth of supporting industries. For example, one such measure is the index of maximum proportion, which is defined as the ratio proportion of the farms primary activity to its total activities. Oecd glossary of statistical terms diversification. Diversification in risk management, the act or strategy of adding more investments to ones portfolio to hedge against the investments already in it. Diversification definition of diversification by merriam. Diversification can help mitigate the risk and volatility in your portfolio, potentially reducing the number and severity of stomachchurning ups and downs. I would like to receive nasdaq communications related to products, industry news and events. A diversified economy is a economy that focuses on more than one thing like canada that it doesnt focus only on mining it focuses on other stuff too.
Traditionally, it has been applied as a strategy to encourage positive economic growth and development. Diversified definition, distinguished by various forms or by a variety of objects. The most evident advantage of doing so would be to increase the resilience of an economy. Zambia, a country similarly endowed with copper resources, exports just over 700 products onefourth of chiles export basket and these go to just 80 countries. Policy makers covet it as a source of economic growth, especially when the size of.
There will always be unpleasant surprises within a single investment. Diversification works because these assets react differently to the same economic event. The most important subjects in this presentation are. Diversification definition is the act or process of diversifying something or of becoming diversified. The concept of economic diversification in the context of. You can always change your preferences or unsubscribe and your contact information is covered by. A diversified investment is a portfolio of various assets that earns the highest return for the least risk. Genetic divergence, emergence of subpopulations that have accumulated independent genetic changes.
As the economy changes, the spending patterns of the people change. The way man attempts to get a living differs in major respects from time to time and from place. Diversification has no maximum so long as more assets are available. May 12, 2016 diversification of an economy means that if one business falls and breaks, the effect on the overall economy within the region will be minimized. The earliest definition comes from the capital asset pricing model which argues the maximum diversification comes from buying a pro rata share of all available assets. Remember, diversification does not ensure a profit or guarantee against loss. Economic diversification of asian landlocked developing countries. Lack of economic diversification is associated with increased economic vulnerability such that external shocks can undermine the development process. Chapter 3 diversified economy, better jobs preamble in the face of competition from global and neighbouring economies, worldwide economic slowdown and the rise of protectionism, hong kong is facing increasing challenges. Although agricultural diversification is a natural response to the changing economic and political environments inside and outside the sector, which will be discussed in a later section, we would like to. Jun 26, 2016 economic diversification can mean different things depending on the context. Export diversification refers to deliberate policies intended to change the shares of. First, the high level of export concentration makes these economies.
The predominant way of thinking about it is what is known as economic complexity, which is the idea that countries should not be dependent upon a small number of products for their economic livelihoods. The model is used to study strategies to foster diversification in poorer countries, which could help to better target action in the implementation of internationally. Learn vocabulary, terms, and more with flashcards, games, and other study tools. The most prominent change has been the shift towards industry. Diversification, economies of scope, and market power. A typical diversified portfolio has a mixture of stocks, fixed income, and commodities. Advantages and disadvantages of diversification in. Economic diversification is very relevant for developing countries, and in particular the least. In this context, economic diversification is a matter of concern for countries that exhibit the following two characteristics. We must strive for innovation to develop a high valueadded and diversified economy, as well as.
Aug 08, 2015 a diversified economy is an economy based on a broad spectrum of economic sectors. It contrasts with the laissezfaire approach that, in its purest form, eschews any attempt to guide the economy, relying instead on market forces to determine the speed, direction, and nature of economic evolution. Sectoral vulnerability and economic diversification strategy. One of the primary benefits of diversification is that a diversified economy helps support multiple businesses within it. Agriculture is the predominant economic line of work of the rural communities in india, and plays a vital role in the socioeconomic development of these communities. Diversification can be understood as the corporate strategy that a company implements to increase the market share and sales volume by introducing new products in new markets or industry, which is distinct from its core business. India acquires its major share of production revenues from the rural agricultural sector of the economy. Economic diversification is the process of shifting an economy away from a single income source. Economic diversification remains a challenge for most developing countries and is. Economic diversification is generally defined as the process in which the economy becomes more diverse in terms of goods and services it produces.
It is rich in natural resources and it has strong industrial capacities and flourishing online services. Its based on manufacturing, agriculture, trade, etc. Since a single securitys contribution to the market risk of. Pdf diversification and development of the united arab. Considering then the third meaning, economic diversification consists in the. The rationale behind this technique contends that a portfolio constructed of different. Tourism in botswana is recognised as a means of supporting the diversification the economy which is concentrated in the mining sector, because tourism contributes to the gross domestic product gdp of the country by 8.
What are the advantages of economic diversification. Industrial diversification may also be employed when choosing assets for a corporate investment portfolio. Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. Empirical research shows that diversification in exports and in domestic production ha been conducive to ve economic growth, although a vast heterogeneity is observed amongst developing country groups and regions. The calls for economic diversification have been expressed more frequently by. Aug 15, 2019 diversification is a technique that reduces risk by allocating investments among various financial instruments, industries, and other categories. The predominant way of thinking about it is what is known as economic complexity, which is the idea that countries should not be dependent upon a small number of products. The ministry of economy announced in 2016 that it aims to increase the contribution of fdi to five per cent of the countrys. Evaluating the impact of product diversification on. Shapiro, commissioned by the directorate for financial, fiscal and enterprise affairs, oecd, 1993. By diversifying your portfolio, you reduce the consequences of a wrong forecast, says ryan nauman. Economic diversification is very relevant for poorer developing countries to create jobs and foster economic development. Explaining the pattern of diversification in the global economy and its implications for fostering diversification in poorer countries working paper pdf available.
Iowas diversified economy for more information about iowas economy contact. Unfortunately, identifying that portfolio is not straightforward. Developing countries as a whole have been remarkably successful in diversifying their economies and their export structures. Module 2 economy its meaning and types about economy 26 notes 4. Diversification dividing investment funds among a variety of securities with different risk, reward, and correlation statistics so as to minimize unsystematic risk.
Economy of suriname, diversified but still not diversified. Diversification is an asset allocation plan, which properly allocates assets among different types of investment. The situation has led to non development of other sectors of the economy like exploitation of abundant solid minerals, agriculture. Start studying diversification, economies of scope, and market power. The high economic gains of the oil industry made the nation to abandon other sectors of the economy and depend solely on oil industry. It forces an organization to identify how it might add value to an. Diversification is a growth strategy that capitalizes on market opportunities by allocating investment risk over different asset classes. How big are the benefits of economic diversification. Diversify meaning in the cambridge english dictionary.
This issue of the focus explores the economic diversification of caribbean countries as a strategy for reducing. What is the definition of economic diversification. It was prepared by lauren persha, william farrell, with research support from samantha downey and. Economic diversification independent evaluation group. Economic diversification is inextricably linked with economic development and poverty reduction, and success will be crucial for many developing countries as they seek to increase the number and quality of jobs in the face of a rapidly rising and youthful working population. Diversification and development of the united arab emirates economy. Iowa is known throughout the world as americas heartland, the source of an abundant supply of top quality agricultural and manufactured goods. The following are the advantages of diversification. If we substitute in our previous example the diversified portfolio p with the market portfolio i. Export diversification and competitiveness in developing. How can i put and write and define diversified economy in a sentence and how is the word diversified economy used in a sentence and examples.
Increased diversification is also associated with lower output volatility and greater macroeconomic stability e. Economic diversification and nonextractive growth diversification of the economy and broadbased economic development are critical for the longterm sustainable development in resourcerich developing countries rrdcs for two reasons. Economic diversification is the process of shifting an economy away from a single income. Sep 27, 2019 diversification is important in investing because markets can be volatile and unpredictable. Countries care about export diversification to achieve a higher level of economic development. A lack of economic diversification is often associated with increased vulnerability to external. Past record and future trends martin hvidt abstract employing an empirical and comparative approach, this research paper analyses the past record and future trends of economic diversification efforts in the six gulf cooperation council gcc countries. And after all, a diverse economy has long been thought to play a key role in achieving a sustainable economy.
Brown, an economy is a system by which people get living. Traditionally, economic diversification has been used as a strategy to transform the economy from using a single source to multiple sources of income spread over primary, secondary and tertiary sectors, involving large sections of the population. As the theory in industrial economics says, the higher the number of product market combinations where the firm operates, the higher level of risk fragmentation. Economic diversification has the propensity to meet the basic requirement for sustainable development like meeting the poors basic needs which revolves around provision of job, food, health, clothing and shelter by opening diverse avenues of economic activity which accommodates broad spectrum of people. Diversification of the economy and broadbased economic development are critical for the longterm sustainable development in resourcerich developing countries rrdcs for two reasons. If the scope and breadth of company types and diversification strategies above are any indication, this is a journey that can vary dramatically from business to business. The aim of this study is to provide diversification strategy researchers with a unique map to better understand diversification strategy related publications and to provide a. Depending on a single customer or client, to the point where the loss of this client would dramatically affect the entire business. Explaining the pattern of diversification in the global economy and its implications for fostering. It would be a good idea to diversify the local economy away from its present over. Economic diversification is a key element of economic development in which a country moves to a less concentrated production and trade structure. Glossary of industrial organisation economics and competition law, compiled by r. Economic diversification in resource rich countries.
For a well diversified portfolio, the only thing that matters is the risk that investors cannot get rid of the nondiversifiable ones. Case studies in economic diversification economy, but the cases primarily lay out the elements of each countys economic diversification efforts. Economic planning, the process by which key economic decisions are made or influenced by central governments. Let us define, as the substitution and complementarity. Diversification financial definition of diversification. Diversification definition, the act or process of diversifying. Agricultural diversification involves the reallocation of some of a farms resources to new products or nonagricultural activities. Economic diversification for sustainable development in nigeria. At independence, farming, especially cattle, was the most important economic activity. Economic diversification falls into two major types.
Economic diversification for sustainable development in. The read y explanation to this economic par adox is that the oil sector that produces about 80% of export earnings is in the hands of less than one percent of the nigerian population. Named a top workplace by the milwaukee journal sentinel, diversified insurance solutions is proud to be one of wisconsins largest independent insurance brokerages, featuring employee benefits, commercial property and casualty, 401k, human resources, personal insurance, executive benefits and risk managementsafety services. Pdf on aug 25, 2017, clovis freire and others published.
Agricultural diversification is measured in a number of ways throughout the world. Diversification into a number of industries or product line can help create a balance for the entity during these ups and downs. Lessons from practice why economic diversification matters economic diversification is a key element of economic development in which a country moves to a more diverse production and trade structure. Economic diversification is the process of shifting an economy away from a single income source toward multiple sources from a growing range of sectors and markets. Diversification is a risk management technique that mixes a wide variety of investments within a portfolio. What is diversification advantages, disadvantages, types.
Diversification of an economy means that if one business falls and breaks, the effect on the overall economy within the region will be minimized. Why diversification is important for economic development of regions and areas. Diversification strategy definition types of diversification strategies march 1, 2019 by umar farooq diversification strategy probably takes place, when company or business organizations introduce a new product in the market. In this scenario, the portfolio manager will seek to not only vary the type of holdings included in the investments, but also the range of variety within those subgroups of holdings. The opposite of diversified economy would be kuwait since the economy is highly depended on oil production.
Advantages and disadvantages of a diversified economy. There is mounting evidence that related diversification may be more profitable than unrelated diversification. Three constant factors in the definition globally include number of employees, total annual sales and value. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk. The 4 primary components of a diversified portfolio. This means that if the goal is to make sure the portfolio uses stock holdings to make up 50% of the total. Investors accept a certain level of risk, but they also.