Regional economic growth in Hungary 1998–2005: What does really matter in clusters?

Balázs Lengyel and Izabella Szakálné Kanó ()
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Izabella Szakálné Kanó: University of Szeged, Faculty of Economics and Business Administration, Szeged, Hungary

Acta Oeconomica, 2014, vol. 64, issue 3, 257-285

Abstract: Although industry clusters are major targets of regional economic development in less developed regions as well, we still need a deeper understanding of how the spatial clustering of firms generates dynamics in lagging regions. These latter environments may differ from the typical cluster policy examples that are usually specialised global centres of dynamically growing industries. Using census-type data of Hungarian firms, we test the effect of major cluster indicators — regional specialisation and spatial concentration of industries — and the impact of FDI on regional productivity and employment growth in Hungary. Our results suggest that regional specialisation does not affect regional growth, while the 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 specialisation. Results suggest that Hungary has evolved into a dual economy in which previously specialised regions and geographically concentrated industries have lost their pace, while the main factor that favoured regional economic growth was the presence of large foreign companies. Therefore, economic policies fostering regional specialisation and the spatial concentration of industries — such as cluster policy — may have minor effects unless the interaction of foreign-owned and domestic companies is encouraged.

Keywords: agglomeration economies; industry clusters; foreign direct investment; regional productivity growth; regional employment growth; Hungary (search for similar items in EconPapers)
JEL-codes: J61 L16 O18 O47 P25 R11 (search for similar items in EconPapers)
Date: 2014
Note: Balázs Lengyel acknowledges financial support received from the Hungarian Scientific Research Fund (PD106290). The work of Izabella Szakálné Kanó was supported by the European Union and co-funded by the European Social Fund under the TÁMOP-4.1.1.C-12/1/KONV-2012-0005 project entitled “Preparation of the concerned sectors for educational and R&D activities related to the Hungarian ELI Project”. The authors would like to express their special thanks to Ichiro Iwasaki and Miklós Szanyi for their support, comments, and suggestions that greatly contributed to formulating previous versions of this paper. Additional comments have been received from Zoltán Bajmócy, Imre Lengyel, and László Szerb. The authors gratefully acknowledge the useful comments of three anonymous referees. All remaining errors are the authors’ responsibility.
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