Integration, Regional Specialization and Growth Differentials in EU Acceding Countries: Evidence from Hungary

14 Anna Iara / Iulia Traistaru

1   GDPCAP t+T                       1 SPEC t+T

(4)-ln(-------^j-) = a + blnGDPCAP + + c-ln(----^J—) + dAGRIC , + eSERV + +

T GDPCAP _t                  ^j,t T SPEC _t           ^{j,t j,t}

,t                                               ,t

+fOPEN,t+gBORDEU+ε,t,t+T

The estimation results are shown in columns 2-5 in Table A2.4. The pattern of regional
divergence is still present. We find a positive relationship between regional
manufacturing change and regional growth, indicating that, on average and other things
equal, increasing regional manufacturing specialization may be associated with higher
growth rates. Because the increased specialization is taking place in interior regions,
which are middle income regions, it offsets the divergence of the high income regions,
but it exacerbates that of the low income regions. The coefficient of the regional
manufacturing specialization change is significant at the 1 percent level in all
estimations suggesting a robust result. A 1 percent increase in the regional
manufacturing specialization results in an increase of around 0.3 percent in the average
annual regional growth rate both when all regions are included and in the case of the
estimations without the capital region. On average, and other things equal, being a
region bordering the EU is associated with a higher average annual growth rate of real
GDP per capita by 3 per cent higher in comparison with the rest of the regions. The
higher the share of employment in agriculture and services, respectively, the lower the
regional growth. The corresponding coefficients are negative and significant.

6 Conclusions

This paper investigated the impact of market integration on regional production
structures and regional growth differentials in Hungary over the period 1994-2000.

We find evidence indicating increased economic integration after 1994 as shown
by increased shares of exports in regional industrial output and an increased number of
firms with foreign participation related to the regions’ population size. Regions
bordering the EU and interior regions have the highest manufacturing specialization
levels and regions bordering other accession countries the lowest. Our analysis indicates
a relocation of manufacturing towards border regions, in particular towards regions
bordering the EU. On average, regional manufacturing specialization increased over the
period 1994-2000 by 6.5 percent. Interior regions and regions bordering countries
outside the EU enlargement had the highest increase in regional specialization, regions

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