Related trade linkages, foreign firms, and employment growth in less developed regions

How does international trade of foreign-owned companies contribute to regional economic growth in less developed regions? Are there knowledge externalities at play between co-located trade activities of foreign and domestic firms? We address the above questions by analysing the impact of technological relatedness of regional import and export activities in manufacturing, performed by foreign and domestic companies on regional employment growth in Hungary between 2000 and 2012. Results suggest that the related variety of export activities and the relatedness between import and export products benefits regional employment growth in general, while the host economy benefits more from the technological relatedness of domestic firms’ trade activities, rather than relatedness to or between foreign firms’ activities. Employment of domestic firms benefits from the trade activity of co-located foreign firms only if it is in the same product class.