Regional Growth in a Dual Economy: Marshall-Arrow-Romer Externalities and Firm-Ownership in Hungary
30 Pages Posted: 27 Jan 2013 Last revised: 30 Jul 2013
Date Written: August 26, 2012
Using census-type data of Hungarian firms, we test the Marshall-Arrow-Romer (MAR) hypothesis on the impact of agglomeration economies on regional economic growth. The results suggest that MAR type of local knowledge externalities have a significant positive impact on TFP growth. However, initial and dynamic levels of foreign- and domestic capital had adverse effect on productivity growth. Moreover, slower employment growth was observed in locations with a higher level of initial regional specialization. We argue that regional growth was driven during the transition from the socialist structure into market economy by low-cost motivations of foreign-owned firms; but due to the gap between MNEs and domestic companies – the so-called dual economy – local knowledge externalities hardly exist between the two spheres.
Keywords: agglomeration economies, foreign direct investment, regional productivity growth, regional employment growth, transition economy
JEL Classification: J61, L16, O18, O47, P25, R11
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