Leading Sectors and Leading Regions : Economic Restructuring and Regional Inequality in Hungary since 1990

This article examines factors accounting for persisting regional inequality in Hungary during the regime change from socialism to a market economy in 1990. We examine the determinants of regional inequality through the lens of leading sector theory which has been used to explain why some ex-socialist countries have done better than others during the transformation. In other words, we ask whether some regions of Hungary are doing better than others for the same reasons that some ex-socialist countries have outperformed their counterparts. We use county level data from the Hungarian Central Statistical Office to examine whether the quantity and types of foreign direct investment counties have received since 1990 are associated with regional inequality in per capita GDP. We find that foreign capitalists concentrate human-capital-intensive investment in already well performing locations because they have similar supply structures to their home economies. We also contend that no measure of institutional modernization is likely to make lagging regions attractive candidates for human-capital-intensive investments in the near future. Hence, regardless of the national state's efforts to target development to lagging areas, or the effectiveness of local institutions, lagging regions are likely to remain underdeveloped. We recommend that future field-based research be conducted to examine the nexus between FDI, the nation state and localities. Unraveling interrelationships between these three political economy sites will expose the causal forces sustaining regional inequalities during post-socialism. Cet article analyse les facteurs qui expliquent l'inegalite persistante entre regions hongroises lors du passage du socialisme a une economie de marche en 1990. Nous examinons les determinants de l'inegalite regionale a travers la theorie du secteur moteur qui a servi a expliquer pourquoi certains ex-pays socialistes ont mieux reussi que d'autres pendant la transition. Plus precisement, nous cherchons a savoir si des regions de Hongrie font mieux que d'autres pour les memes raisons que certains ex-pays socialistes ont eu de meilleurs resultats que leurs homologues. Nous utilisons des donnees departementales provenant du Bureau central hongrois de la statistique afin d'examiner si la quantite et les types d'investissement direct a l'etranger que les departements ont recu depuis 1990 sont associes a une inegalite regionale en termes de PIB par habitant. Nous etablissons ainsi que les capitalistes etrangers concentrent leur investissement a fort capital humain dans des sites qui presentent deja de bons resultats, les structures d'approvisionnement etant similaires a celles de leur economie nationale. Nous soutenons egalement que, dans le court terme, aucune mesure de modernisation institutionnelle ne va sans doute transformer les regions en retard en candidates interessantes pour des investissements a fort capital humain. En consequence, quels que soient les efforts de l'Etat national en vue de developper specifiquement les zones en decalage, ou l'efficacite des institutions locales, les regions en retard resteront sans doute moins developpees. Nous conseillons d'entreprendre a l'avenir des etudes de terrain afin d'analyser le lien entre IDE, Etat national et regions. Demeler les relations entre ces trois centres de l'economie politique revelera les forces en cause dans la durabilite des inegalites regionales pendant l'apres-socialisme. Adapted from the source document.