Industry policy in a portfolio-theory approach

Abstract

The study aimed to examine the structural changes in the Hungarian national economy in a growth-stability coordinate system based on the data of the past quarter of a century. We have identified industries that change below, close to, and well beyond the pace of national economic development. Our methodology was the approach of modern portfolio theory applied to financial portfolios. We showed that compared to the current structure of the national economy, even a significant positive shift is possible in the longer term. Our analytical framework is also suitable for evaluating economic policy goals. Among the industries most supported by economic policy, the shift towards construction, accommodation and food service activities, and agriculture was not found to be efficient from a growth-stability point of view. Our approach confirms the expert opinions criticising the reindustrialisation policy, according to which reindustrialisation will not significantly increase the country's average growth rate. We add to this that forcing it is not practical from a stability (risk) point of view either. A more specific, networked industrial policy might result in improvements.