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

Anna Iara / Iulia Traistaru

the regions in four categories: BEU- regions bordering the EU (Austria), BAC - regions
bordering other accession countries (Romania, Slovakia, Slovenia), BEX - regions
bordering countries outside the EU enlargement (, Serbia and Montenegro, Ukraine),
and interior regions- INT.

We use a measure of regional FDI intensity (the number of firms with foreign
capital per 1000 inhabitants) as a proxy for knowledge spillovers. Specialization of
regions is defined in relation to production structures. In absolute terms, a region is said
to be specialized if a few industries have a high share in the regional manufacturing
activity. A region j is specialized in a certain industry i if that industry has a large share
in the regional manufacturing activity. Relative measures of specialization compare the
distribution of industries shares in regional manufacturing activity with a benchmark,
for instance the distribution of industries share at national level⁷.

In this paper we use a standard absolute measure of specialization, the
Herfindahl index (Hj) defined as follows:

(1) Hj =∑_i(sij)²

sij is the share of employment in the manufacturing branch i in total manufacturing of
region j.

4    Descriptive empirics

4.1   Evidence of increased market integration

In Hungary, during the 1990s, a clear trade re-orientation towards the EU has taken
place. The share of exports to the EU in total exports increased from 35 percent in 1990
to 75 percent in 2000 and the share of imports from 37 percent in 1990 to 58 percent in
2000. The bulk of exports consisted of manufactured products representing 91 percent
of exports in 2000 (European Commission (2001a)).

Over the period analyzed in this paper, 1994-2000, the average degree of
openness of regions increased. Tables A1.1 and A1.2 show summary statistics of the
share of exports in regional manufacturing output. The average share of exports in
regional manufacturing output increased from 28 to 49 percent over the period 1994-
2000. The regional differentials with respect to openness increased as shown by the

⁷ Details about various specialization measures are given in Amiti (1999), Aiginger, et. al (1999),
Brülhart (2001), Devereux et al. (1999), Hallet (2000), Traistaru / Iara (2003)

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