Abstract
There is an influential body of literature suggesting that economic diversity rather than specialization fuels the economic performance of regions and nations. In this paper, we argue that this hypothesis has no universal applicability and that a more differentiated view is needed.
In particular, historical specificity of the local environment and structural characteristics of regional economies should be taken into account. We focus on the effects of industrial specialization on economic performance and vulnerability of Central European post-communist regions, namely Czech microregions with less than 200 thousand inhabitants.
We examine whether economic performance and vulnerability of these small regions is fuelled rather by industrial specialization or diversity when controlling for other potential determinants of regional economic performance. We have found that the dependence of Czech regions on manufacturing correlates with higher economic performance but also with higher regional vulnerability.
In addition, industrial specialization within manufacturing was found to be instrumental forto economic performance offor regions with high dependence on manufacturing. With a decreasing share of employment in manufacturing, industrial diversity rather than specialization becomes more valuable for the economic performance of Czech regions.