Regional Growth in a Dual Economy: Marshall-Arrow-Romer Externalities and Firm-Ownership in Hungary

30 Pages Posted: 27 Jan 2013 Last revised: 30 Jul 2013

See all articles by Balázs Lengyel

Balázs Lengyel

Hungarian Academy of Sciences (HAS) - Institute of Economics CERS-HAS (IEHAS); International Business School - Budapest (IBS)

Miklós Szanyi

Hungarian Academy of Sciences (HAS) - Institute for World Economics

Date Written: August 26, 2012

Abstract

Using census-type data of Hungarian firms, we test the Marshall-Arrow-Romer (MAR) hypothesis on the impact of agglomeration economies on regional economic growth. The results suggest that MAR type of local knowledge externalities have a significant positive impact on TFP growth. However, initial and dynamic levels of foreign- and domestic capital had adverse effect on productivity growth. Moreover, slower employment growth was observed in locations with a higher level of initial regional specialization. We argue that regional growth was driven during the transition from the socialist structure into market economy by low-cost motivations of foreign-owned firms; but due to the gap between MNEs and domestic companies – the so-called dual economy – local knowledge externalities hardly exist between the two spheres.

Keywords: agglomeration economies, foreign direct investment, regional productivity growth, regional employment growth, transition economy

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

Suggested Citation

Lengyel, Balázs and Szanyi, Miklós, Regional Growth in a Dual Economy: Marshall-Arrow-Romer Externalities and Firm-Ownership in Hungary (August 26, 2012). Available at SSRN: https://ssrn.com/abstract=2207356 or http://dx.doi.org/10.2139/ssrn.2207356

Balázs Lengyel (Contact Author)

Hungarian Academy of Sciences (HAS) - Institute of Economics CERS-HAS (IEHAS) ( email )

Budaorsi ut 45
Budapest, 1112
Hungary

International Business School - Budapest (IBS) ( email )

Záhony utca 7.
Budapest, 1031
Hungary

Miklós Szanyi

Hungarian Academy of Sciences (HAS) - Institute for World Economics ( email )

P.O. Box 936
Budapest, H-1535
Hungary

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