Acta Univ. Agric. Silvic. Mendelianae Brun. 2019, 67, 1561-1575

https://doi.org/10.11118/actaun201967061561
Published online 2019-12-22

How Change in Industry Mix Can Improve the Financial Performance of Regional Economies: Evidence from the Portfolio Approach

Marina Malkina

Center of Macro and Microeconomics, Institute of Economics and Entrepreneurship, Lobachevsky State University of Nizhni Novgorod, 23 Prospekt Gagarina, 603950 Nizhni Novgorod, Russia

Received June 3, 2019
Accepted September 6, 2019

The aim of the study is to adapt the portfolio approach to optimization of the industrial structures of regional economies and to assess its results. The research is based on data of the Russian regions and federal districts in 2004–2016. The ratio of a balanced financial result to gross regional product referred to as financial return, and its volatility, called financial risk, were used as target parameters of regional economies. The application of the portfolio approach allowed us to evaluate financial return and risk in the regions and districts and decompose them by industries. Further, we solved three optimization problems: maximization of financial return at a given risk level, minimization of risk at a given return level, maximization of the Arrow-Pratt risk aversion utility function, and assessed their gains. As a result, we found that all three optimizations were often accompanied by a certain re-specialization of regional economies, rather than an increase in the degree of their diversification, although in the regions the situation was significantly different. For the federal districts, we identified a cross-regional effect that neutralized financial volatility, which can be used in re-specialization of regions within districts. Ultimately, the features and limitations of the application of the portfolio approach to the management of industrial structures of regional economies were discussed.

Funding

The reported study was funded by RFBR according to the research project No. 19-010-00716, “Development of methodology and non-traditional methods for assessing financial instability”.

References

32 live references