A community’s economic diversity is a multifaceted characteristic that can be measured and understood through several complementary lenses. It can mean businesses with a mix of sizes, ages, and ownership structures, or the distribution of employment across different industries and sectors. Each of these dimensions can offer insights into a community’s potential economic resilience or vulnerability.
In this brief, we explore economic diversification as an indicator of economic capital (or the financial resources and assets a community has to generate economic growth and improve well-being. We compare different states’ reliance on soy exports to illustrate how diversification affects the resilience of local economies.
Pairing broader economic indicators with county-level diversification data can help local governments, economic development organizations, and funders identify where vulnerabilities are most concentrated and where investments in economic resilience, such as workforce development, industry attraction, or entrepreneurship support, can have the greatest impact.
Economic Diversity Varies by Type of County and Type of Diversity
A growing body of research links industry diversification to greater economic resilience during sector-specific downturns and structural economic changes. Studies using county-level employment data find that more industrially diverse counties weather economic shocks better than concentrated ones (Brown and Greenbaum 2017). Moreover, economists have long argued that spreading activity across sectors can automatically stabilize against industry-specific risks (PDF).
Metropolitan areas have significantly higher diversity scores (Shannon Index of 2.31) compared with rural nonadjacent counties (1.98), reflecting the broader range of economic opportunities available in urban centers. Similarly, more rural areas and persistent poverty counties exhibit higher shares of employees working in the dominant industry.
These diversity scores translate to risk exposure: when economic shocks occur in an industry, more diverse economies can redirect workers and capital to growing sectors, while areas with fewer alternative industries face prolonged recovery periods.
When economic activity is highly concentrated in one industry or a few very large businesses, communities may have fewer alternative employment opportunities to absorb workers if those firms downsize or close. Persistent poverty counties, which tend to have a higher share of very large businesses, can face greater exposure to this risk during sector-specific downturns.
Having a balanced mix of business sizes and industries is also valuable employment and wage stability, as well as a community’s capacity to weather economic downturns. If one industry or major employer falters, a diversified economy offers alternative opportunities. These factors interact in complex ways: larger establishments may provide stability but can create overreliance, while a vibrant small business ecosystem fosters innovation but might lack the capital reserves and access to credit to weather prolonged downturns.
Economic Diversification Supports Economic Resilience
A diversified business mix helps communities withstand economic shocks, adapt to changing market conditions, and recover more quickly from downturns. To understand how business diversification functions as a form of economic capital, we look at how disruptions in the soybean industry have affected states with the highest share of soybean exports.
As the second-largest crop by value in the US, soybeans faced severe trade disruptions in 2025, just a few years after the 2018–19 US-China trade war. In 2025, escalating tariffs led China to halt purchases entirely before a partial deal was reached later in the year. During this period, China targeted soybeans and other agricultural products with retaliatory import tariffs, which led the US government to bail out farmers with tens of billions of dollars in federal subsidies. These trade policies demonstrate how economies can be affected by forces beyond local control, leaving communities with a high concentration of one industry particularly vulnerable to macroeconomic shifts.
The figure below illustrates the top 10 states with highest soybean exports as a share of total of exports in 2024, highlighting the varying degrees of reliance on soybean markets. States like Louisiana and Washington with high export volumes and significant soybean shares face greater risks from tariff-induced market shifts. Notably, though Illinois ranks among the top soybean producers nationally, it shows lower export dependence as a share of total state exports, suggesting a more diversified export portfolio or greater domestic consumption of its agricultural products.
This variation demonstrates that high levels of agricultural production don't automatically translate to high trade vulnerability—economic structure and market distribution matter. States with concentrated soybean exports may be particularly vulnerable to trade shocks, underscoring the value of diversified economic strategies for bolstering resilience.
Still, state-level patterns can obscure significant within-state variation. The risks of agricultural industry concentration are often most acute in rural communities where a single industry dominates the local economy, with few alternative sectors to absorb shocks.
Pairing broader economic indicators with county-level diversification data can offer a clearer picture of where vulnerabilities are most concentrated and where investment could have the greatest impact. Understanding these patterns can help communities make more informed decisions about strategic investments and policy priorities.
Community leaders can use business diversification data to identify where economic resilience efforts are needed, and how to align them with local conditions. Diversification strategies can include
- targeted investment in complementary industries that reduce overreliance on dominant sectors,
- entrepreneurial support systems that create pathways for new ventures,
- workforce development programs that prepare workers with transferable skills applicable across multiple industries,
- infrastructure investment to support various types of business activities, and
- policy coordination that aligns economic development, education, and infrastructure initiatives to foster diversification.
About Community Capitals
This article is a part of a series exploring how the Community Capitals Framework can help communities, philanthropy, and impact-minded investors align programming and investment decisions with existing local opportunities. This framework—developed by sociologists and advanced by the Heron Foundation—provides a helpful framework (PDF) for understanding community assets and capacity. The types of capital include
- human capital (i.e., the skills and experiences of residents),
- natural capital (i.e., the environment and natural amenities),
- civic capital (i.e., trust, values, and culture),
- economic capital (i.e., economic systems and infrastructure),
- and others.
You can find our additional articles on disaster risk and recovery capacity and education anchor institutions here.
