Shift-Share Analysis of Industry Diversification: The Cases of Indonesia, the Philippines, And Vietnam

Abstract

Industry diversification is one of the strategies implemented to achieve higher employment in developing countries. Based on empirical studies, development of countries materialize by increasing the variety and diversity of economic activities. Diversified economy can reduce impact of any economic crisis or shocks that might be encountered. Among the three (3) most common models used, Random Effect Model (REM) and Pooled Least Square Model (PLSM) are the most suitable models to be used to examine the effects of diversification of industries in developing countries, specifically change in employment for the region. Both PLSM and REM showed that industry diversification is positively correlated with change in employment for the region. The models also depicted that diversification of industry, when taken as a whole, has significant effect on change in employment in the region. Therefore, it is recommended that the governments of the three countries should support local capacities; attract investors; support Go Negosyo [Business]; implement one-shops business application; avoid huge variations in business tax rates; continue to focus on attracting foreign investment; and increase budget in research and development.