Regional Economic Growth in Hungary 1998-2005: What Does Really Matter in Clusters?

29 Pages Posted: 1 Aug 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)

Izabella Szakálné Kanó

University of Szeged

Date Written: July 30, 2013

Abstract

Although industry clusters are major targets of regional economic development in less developed regions as well, we still need a deeper understanding on how spatial clustering of firms generates dynamics in lagging regions. These latter environments may differ too much from those typical cluster policy examples that are usually very specialized global centres of dynamically growing industries. Using census-type data of Hungarian firms, we test the effect of major cluster indicators – regional specialization and spatial concentration of industries – and the effect of FDI on regional productivity and employment growth in Hungary. Our results suggest that regional specialization does not affect regional growth but spatial concentration of industries is found to influence productivity and employment growth with an overwhelmingly negative effect. Furthermore, regional employment growth is associated negatively with the initial level of regional specialization. We argue that Hungary has evolved into a dual economy; in which previously specialized regions and geographically concentrated industries have lost their pace. The main factor that favoured regional economic growth was the presence of large foreign companies. Therefore, economic policies fostering regional specialization and spatial concentration of industries – such as cluster policy – may have minor effects only if the interaction of foreign-owned and domestic companies is not fostered.

Keywords: agglomeration economies, industry clusters, foreign direct investment, regional productivity growth, regional employment growth

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

Suggested Citation

Lengyel, Balázs and Szakálné Kanó, Izabella, Regional Economic Growth in Hungary 1998-2005: What Does Really Matter in Clusters? (July 30, 2013). Available at SSRN: https://ssrn.com/abstract=2303748 or http://dx.doi.org/10.2139/ssrn.2303748

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

Izabella Szakálné Kanó

University of Szeged ( email )

P.O. Box 652
Szeged, H-6701
Hungary

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