Economic Phenomena Of Specialization And Diversification - amazonia.fiocruz.br

Economic Phenomena Of Specialization And Diversification - are not

There are many theories and much academic debate about the reasons for, and exceptions to, these adverse outcomes. Most experts believe the resource curse is not universal or inevitable, but affects certain types of countries or regions under certain conditions. The idea that resources might be more of an economic curse than a blessing began to emerge in debates in the s and s about the economic problems of low and middle-income countries. The term resource curse was first used by Richard Auty in to describe how countries rich in mineral resources were unable to use that wealth to boost their economies and how, counter-intuitively, these countries had lower economic growth than countries without an abundance of natural resources. An influential study by Jeffrey Sachs and Andrew Warner found a strong correlation between natural resource abundance and poor economic growth. Scholarship on the resource curse has increasingly shifted towards explaining why some resource-rich countries succeed and why others do not, as opposed to just investigating the average economic effects of resources. From onward, a new discussion emerged concerning the potential for a resource curse related to critical materials for renewable energy. Economic Phenomena Of Specialization And Diversification

Swissinfo writes Why big companies fear the Responsible Business Initiative. Disclosure : Some of the links below may be affiliate links. Diversification is often called the only free lunch in investing.

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It is a great way to reduce the volatility of a portfolio and sometimes increase its returns. You want to avoid having all your eggs in one basket. So, instead, you are going to use many baskets. The idea of diversification is mostly to invest in many companies and many countries. But there are other forms of diversification that we are going to see in this article.

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And we are also going to discuss the limits of diversification. In essence, diversification is a risk management strategy. The main goal is to reduce the risks in your portfolio. In practice, we measure reduced risk by reduced volatility in a portfolio.

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The idea is the same as not putting all our eggs in the same basket. If one of your assets fails, you do not want your entire portfolio to fail. You Phenomwna to spread your risk over several assets. For this scenario, both investors will have the same average positive returns. The difference is in the risk they are both taking. On the https://amazonia.fiocruz.br/scdp/blog/purpose-of-case-study-in-psychology/respecting-the-founding-fathers.php hand, the risk of Investor B losing all its money is incredibly low, at 0.

So, in this example, diversification reduces your risk without reducing your returns! This example uses stocks, but it applies to other ways to diversify your entire portfolio. Indeed, there are several forms of diversification:. Before we delve into the different forms of diversification, we need to look at the limits of diversification. Compared to our original stock scenario, adding more stocks does not necessarily reduce your risks. In practice, stocks Specializattion not entirely independent of each other. You need to add stocks that have a low correlation to each other.

If you have two stocks that have a high correlation, you still Anx a high risk that both fail at the same time. But if you have two stocks that are negatively correlated, you will have avoided this risk. In practice, there will be some level of correlation between most things.]