Functional complexity and sectoral diversification of the economy: an analysis of the occupational structure of employment in the regions of Kazakhstan
Functional complexity and sectoral diversification of the economy: an analysis of the occupational structure of employment in the regions of Kazakhstan

Summary/Abstract: This paper examines the relationship between the functional complexity of Kazakhstan’s regions and sectoral diversification of employment. Functional complexity is measured using the Functional Fitness index, constructed from a «region-year-occupation» matrix and capturing revealed occupational specialization without subjectively assigned occupation weights. Sectoral diversification is assessed through normalized employment entropy and the Herfindahl-Hirschman index (HHI) across economic activities. The empirical basis is a balanced panel of 17 regions over six years of 2019-2024. The results indicate that regions with higher average functional complexity exhibit more diversified sectoral structures and lower sectoral concentration of employment. Between-region regressions confirm a positive relationship between Functional Fitness and normalized entropy, and a negative association with the HHI. At the same time, fixed-effects and Mundlak specifications show that this relationship primarily reflects persistent cross-regional differences rather than short-run changes within regions. Thus, the highest functional complexity is observed in Astana and Almaty cities whose functional profiles are dominated by post-industrial functions, whereas East Kazakhstan, West Kazakhstan, Karaganda, and Akmola regions reflect agrarian-industrial structures.The paper contributes to the literature on regional economic diversification by adapting fitness-complexity logics to the occupational structure of employment and applying it to regional development in Kazakhstan.

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