The role of regional economic diversity in shaping economic resilience: Evidence from EU regions

This paper examines how regional economic diversity shapes economic resilience across European regions during major crises. Using sectoral diversity indicators at the NUTS-2 level, we analyze the impact of diversity on three dimensions of resilience: the depth of economic downturns, the strength of the initial recovery, and the duration of recovery, focusing on the 2008 financial crisis and the COVID-19 pandemic. Our results show that higher economic diversity consistently mitigates the severity of economic shocks, reducing the immediate decline in regional economic activity in both crises. However, this stabilizing effect comes with a trade-off: More diversified regions tend to exhibit weaker short-term recovery dynamics and longer recovery periods. In contrast, regions characterized by higher innovation intensity and productivity-driven specialization recover more quickly. These findings highlight the importance of balancing structural diversity and innovation. While diversity enhances shock absorption, innovation and specialization appear crucial for accelerating recovery. The paper contributes to the literature on regional resilience by providing EU-wide evidence across multiple crises and offers policy-relevant insights on how structural economic characteristics shape regional responses to shocks.