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Agglomeration, foreign firms and firm exit in regions under transition: the increasing importance of related variety in Hungary

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  • Izabella Szakálné Kanó
  • Balázs Lengyel
  • Zoltán Elekes
  • Imre Lengyel

Abstract

Related variety of economic activities is widely recognized to induce regional development; however, it is not clear how this mechanism takes place in regions that go through major structural and institutional transformation. Furthermore, foreign direct investment (FDI) is typically a major source of structural change in these areas; and we still need a better understanding on how foreign-owned (foreign) firms affect the dynamics of domestic-owned (domestic) companies. For these reasons we analyse firm-level exit in Hungarian city regions between 1996 and 2011, over the late post-socialist transition in manufacturing industries, focusing on the difference between foreign and domestic firms. Introducing ownership into the related variety calculation, we estimate the probability of firm exit with the region-level related variety calculated separately for foreign and domestic firms. Our results suggest that related variety of foreign firms decreases the probability of domestic firm exit earlier during the economic transition compared to the related variety of domestic firms. This finding supports the idea that FDI plays a formative role in regions under transition, and shows that domestic firms benefit from being in agglomerations where foreign firms are technologically related to each other.

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  • Izabella Szakálné Kanó & Balázs Lengyel & Zoltán Elekes & Imre Lengyel, 2019. "Agglomeration, foreign firms and firm exit in regions under transition: the increasing importance of related variety in Hungary," European Planning Studies, Taylor & Francis Journals, vol. 27(11), pages 2099-2122, November.
    • Handle: RePEc:taf:eurpls:v:27:y:2019:i:11:p:2099-2122
    DOI: 10.1080/09654313.2019.1606897
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    Citations

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    Cited by:

    1. Roman Fedorenko & Galina Khmeleva & Marina Kurnikova, 2023. "Border Proximity, Ports, and Railways: Analyzing Their Impact on County-Level Economic Dynamics in Hungary, 2001–2020," Economies, MDPI, vol. 11(11), pages 1-20, November.
    2. Nicola Cortinovis & Zhiling Wang & Hengky Kurniawan, 2021. "Industrial Relatedness in MNE Spillovers over Geographical Space," Papers in Evolutionary Economic Geography (PEEG) 2111, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Mar 2021.
    3. Marek Csabay & Zuzana Vincúrová & Milan Stoch & Beáta Stehlíková, 2021. "Enterprise ownership patterns in the least developed districts of Slovakia," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 16(4), pages 807-838, December.
    4. Mattie Landman & Sanna Ojanperä & Stephen Kinsella & Neave O’Clery, 2023. "The role of relatedness and strategic linkages between domestic and MNE sectors in regional branching and resilience," The Journal of Technology Transfer, Springer, vol. 48(2), pages 515-559, April.
    5. Muhammad Ali & Uwe Cantner, 2020. "Economic diversification and human development in Europe," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(2), pages 211-235, June.

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