Industrial Structure and a Tradeoff between Productivity and Resilience

We analyze how a region’s industrial structure affects its productivity and its resilience to shocks. Using co-occurrence analysis, we construct an interdependence network of U.S. industries. For each U.S. metropolitan area, we then calculate an aggregate metric of this network called economic tightness, which captures the interconnectedness among a region’s industries. We find that tightness is positively correlated with economic productivity but negatively correlated with a region’s change in productivity following the Great Recession, revealing a tradeoff between higher productivity and higher resilience. We further find that productivity is higher in metropolitan areas with industry pairs that rarely occur together.