The Composition of Industry and the Duration of State Recessions

In this paper, we investigate the determinants of the duration of state level recessions in the United States that occurred over the period 1979 to 1997. Contrary to much of the existing related literature, we find that a significant factor that influences the duration of state reces-sions is whether a state’s degree of industrial diversity is increasing or decreasing. Specifically, we find that states that are becoming more diverse have recessions of shorter duration. In states where diversity is decreasing, recessions are longer in duration. This finding, we be-lieve, is a hopeful message for states that are relatively more concentrated since it seems to in-dicate that their initial level of diversity is not as important as their change in diversity. There-fore, this could mean that as long as a state can accelerate its industrial diversification, they may be able to reduce the duration of their recessions