Related Variety and Regional Growth in Hungary: Towards a Transition Economy Approach

Abstract

The aim of this paper is to adapt related variety calculations to the special case of Hungarian regional development in the late post-socialist transition period. First, we test regional employment growth in rising and declining regions separately, in order to distinguish those areas that could cope with economic transition and those that could not. We find that related variety speeded up growth in the dynamic regions but at the same time pushed lagging regions to a downhill path that might be due to their unflexible industry structure. Second, regional variety measures are decomposed into domestic and foreign subsets and a new variable, ownership variety is introduced. Findings suggest that regional employment growth is due to related variety in the domestic set in earlier phases whereas the economy has evolved into a stage in which relatedness among foreign firms enhances regional employment growth significantly.

Keywords: related variety, regional employment growth, foreign-owned firms, post-socialist transition

JEL Classification: J61, L16, O18, O47, P25, R11