NMSU study finds state scores low in economic diversity

A report written by a professor and a doctoral student in New Mexico State University’s Department of Economics, Applied Statistics and International Business shows that New Mexico continues to rank in the bottom 10 among states in terms of economic diversity.

The report, written by NMSU professor Richard V. Adkisson, who holds the Garrey E. and Katherine T. Carruthers Endowed Chair in Economic Development, and Sajid Al Noor, a candidate for a doctor of Economic Development degree, was completed in December 2018 and released this month as part of the NMSU Arrowhead Center’s annual release of economic base studies.

The purposes of the studies include understanding regional economic growth, short- and long-term forecasts, identification of potential growth sectors and identification of potential problem areas, NMSU said in news release. The studies also give an indication of an area’s strength compared to the state and the nation.
The study’s findings include the following:

• 2006-12, New Mexico ranked 41st in economic diversity compared to the U.S. as a whole.

For 2016, New Mexico was ranked 42nd using the Hachman index, 47th using Herfindahl-Hirschman and 45^th using the Entropy Index. (The Hachman Index, developed by Frank Hachman, was first published by the University of Utah’s Bureau of Business and Economic Research in 1994. The index measures the extent to which a region’s employment distribution resembles that of a reference area. The NMSU study calculated the Hachman Index for all 50 states for 11 years, 2006-16. The Herfindahl-Hirschman and Entropy indices compare a state only to itself.)

• During 2013, 2014 and 2015, New Mexico’s ranking decreased to 42nd , 43rd and 44^th, indicating that the state gradually became relatively less economically diverse. The ranking increased slightly in 2016 to 42nd. States with the highest rankings were Georgia, Illinois, North Carolina, California and Utah. These states have had consistently diverse industrial structures over the 2006-16 period. States consistently ranked near New Mexico during this period are Arkansas, Iowa, Hawaii and Montana.
• The Hachman Index was the highest for New Mexico in 2009, meaning that the employment distribution among industries in New Mexico was most like the United States’ distribution during that year. After the 2007-09 Great Recession, New Mexico’s Hachman Index fell, indicating less relative diversity, until 2015 when in turned upward again. Despite these changes, New Mexico’s ranking among states did not change significantly.
• The top 10 industries for employment in New Mexico during the study period were 1) state and local government (13.52 percent of state employment in 2001, 12.25 percent in 2008, 12.61 in 2016); 2) real estate (10.07 percent in 2001, 9.06 percent in 2008, 12.42 percent in 2016); 3) federal civilian government (7.91 percent in 2001, 9.20 percent in 2008, 7.17 percent in 2016); 4) retail trade (6.86 percent in 2001, 6.78 percent in 2008, 6.19 percent in 2016), 5) computer and electronic product manufacturing (5.36 percent in 2001, 5.82 percent in both 2008 and 2016); 6) oil and gas extraction (4.83 percent in 2001, 5.74 percent in 2008, 4.93 percent in 2016); 7) Miscellaneous professional, scientific and technical services (4.62 percent in 2001, 5.02 percent in 2008, 3.9 percent in 2016); 8) construction (4.39 percent in 2001, 3.38 percent in 2008, 3.81 percent in 2016), 9) wholesale trade (3.8 percent in 2001, 3.33 percent in 2008, 3.8 percent in 2016); and 10 ) military (3.48 percent in 2001, 3.09 percent in 2008, 3.25 percent in 2016).
• Notable positive changes in employment share over the period of the study includes ambulatory health care services’ share growth from 2.7 to 3.9 percent of total employment. Hospitals, nursing, and residential care facilities grew in share from 2.01 to 2.7 percent. Mining (except oil and gas) nearly doubled its share from 0.97 to 1.91 percent. Two industries were in the top 25 group in 2016 that were not there in 2001: social assistance and motion picture/sound recording, with motion picture/sound recording reaching almost two percent.
• Among industries that decreased in their share, the most precipitous decline was in computer and

electronic product manufacturing, which dropped from fifth to 23rd in ranking and 5.36

percent to 1.12 percent in employment share. Wholesale trade and broadcasting and

telecommunications had more modest declines in employment share. The petroleum and coal

products manufacturing and publishing industries dropped out of the top 25 industries by 2016.

• Conclusions. By its choice of economic incentives and other policies, it seems New Mexico is actively seeking to diversify its economy. Looking at the overall level of diversification as measured by

the Hachman, Hirfendahl-Hirshman and Entropy indices, it appears New Mexico has

become only slightly more economically diverse over the 2001-16 period. While progress has been made, other states have progressed too, making it difficult to move up in the diversity rankings.

In terms of employment shares, there have been a few notable changes within the state with

decreases in some industries being offset by increased shares in other industries. Realistically,

New Mexico, as any other state, has its own unique characteristics that shape its economy. While

the pursuit of economic diversity is worthwhile in many ways, it may be unreasonable to expect

New Mexico, or any other state, to change its diversity ranking significantly in a short amount of

time.

To access the studies, visit https://arrowheadcenter.nmsu.edu/economic-and-policy-studies/.