Cairns compares well for diversity
LAST week, at the launch of the Invest Cairns initiative from the Cairns Post and Advance Cairns, the issue of economic diversity and in particular the diversity of the Cairns economy was a major topic of conversation.
My presentation at the launch presented some clear evidence that the Cairns economy had diversified over the past decade but it got me thinking about how we might better compare diversity across all of Queensland’s regions and provide some historical context.
In considering that problem, I came across a number of papers which used the Hachman Index as a measure of regional economic diversity.
The Hachman Index (developed by Frank Hachman from the Bureau of Economic
Research at the University of Utah in 1995) uses the largest geographic area as a reference region and assumes this region (e.g. Australia) is the most economically diverse.
The index calculates how similar the subject region’s employment distribution is to that of the reference region.
The maximum value for the index is 1.0 (meaning the subject region’s employment make-up is identical to the reference area); the higher the index the more alike to the reference area, and therefore the more diverse, is the region’s employment distribution.
Cairns ranks as the most diverse of all the non-Greater Brisbane regions in Queensland while the Illawarra takes the crown in NSW.
Areas with particularly low scores, such as Mackay and Darling Downs-Maranoa, demonstrate employment distributions which are significantly less diverse than Australia as a whole.
In the case of Mackay, this stems largely from the fact that mining makes up only 1.8 per cent of employment across the nation but accounts for 18.9 per cent in Mackay. Such a large variation in an industry that is relatively so important in the subject region has a large negative effect on the index.
While this analysis helps us to get a handle on the diversity, or otherwise, of these regions, we need to acknowledge that there are shortcomings with this methodology. Not least of which is that it does not account for any potential competitive advantages of a region.
When the GFC hit, and the effect was compounded in Cairns by the collapse of Japanese visitors to the region as that country went through a decade-long recession, we can see that diversity was not all that much lower than it is currently. It is to be hoped that the current trend towards further diversification, and the fact that much has already been achieved, will help to insulate the Cairns economy, at least to some extent, from the worst effects of such an exogenous shock in the future.
Pete Faulkner is a director of Conus Business Consultancy Services.