The Role of Geographic and Sectoral Diversification, and the Herfindahl-Hirschman Index: Insights from Italian Provinces and Regions

This study examines the role of the Herfindahl-Hirschman Index (HHI) and a new diversification index that integrates geographical and sectoral factors to analyzeeconomic activities in Italian provinces. The research highlights how local territorial heterogeneity influences urban and regional economics, emphasizing diversification as a strategy for growth. The findings underscore diversification’s importance in enhancing economic stability and resilience, while comparing it with specialization. Although itcan boost competitive advantage through efficiency and innovation, specializationalso increases vulnerability to sector-specific risks. The study calculates the HHI by using threecategories: geographical diversification of export destinations, sectoral exports,and geographical import diversification. These insights provide a groundbreakingunderstanding of the economic dynamics within Italian provinces and regions, showcasingthe advantages and trade-offs between diversification and specialization in regional economic development.