An Information Theory Approach to Measuring Industrial Diversification

It is demonstrated that entropy is a useful measure for examining industrial diversity either among regions or for a particular region over time. Using the entropy method, employment diversity indices are computed for the 50 states and the district of Columbia for the ten‐year period from 1972 to 1981. Of the 51 study areas, roughly half show high to moderate diversification, and none are distinguished as either highly diversified or highly specialised. Furthermore, the entropy measure is disaggregated into its between‐set and within‐set elements to express the extent and pattern of dispersal between and within different groups and subsets of industries in the United States for the 28‐year period from 1960 to 1987. The US economy is found to be relatively diversified in terms of employment over the period of study. However, there is a decreasing contribution of manufacturing and an increasing contribution of non‐manufacturing to the degree of economic diversification within the total economy.