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portfolio theory, economic development, output, employment
In this paper we introduce and empirically demonstrate a new model of economic development that we call Portfolio Economic Development. Our approach borrows from portfolio theory in finance and focuses on the risk-return nature of development projects. The paper examines how the loss of a dominant industry group from an island economy causes significant economic problems and how those problems might be mitigated by developing the economy in a portfolio context. The approach can help planners select optimal mixes of projects for development of any economy experiencing a transitional period.