Long-run economic growth paths in the Hungarian counties

Abstract

The overall process of economic growth and its spatial inequalities is permanently at the forefront of research in regional science. Based on spatial statistical information, this study identifies the main trends observed in the new Millennium, and derives long-term, county-level growth paths until 2060. Economic growth is analysed in a decomposition, commonly used in the growth accounting literature, under which the effect of demographic, productivity and employment changes on growth performance is delineated for each NUTS3 region. Based on these results, the second part of the study projects long-term, county-level growth paths for the Hungarian counties in a top-down approach. Under this, an existing, national-level economic growth projection published by the European Commission will be spatially disaggregated among the NUTS3 regions. Our preferred method, following a practice of the European Commission, is the trend extrapolation which expresses path dependence, that is, the impact of past growth processes appears in the long-run projected regional paths, but with a gradually decreasing importance. The goal of this exercise is not to prepare exact forecasts, but to address “what, if…” type questions, considering what development paths and regional inequality scenarios can be expected if we assume that business-as-usual will follow in the long run.

Two possible spatial scenarios will be considered. One of them projects a decreasing pace of spatial differentiation, and the other presumes constantly increasing spatial differentials. The first scenario delivers more preferable and more reasonable results for the NUTS3 level growth prospects. The results point out that the spatial concentration of the economic activity is expected to proceed in the future in Hungary, but more slowly than it did between 2000 and 2018. Due to the unfavourable demographic prospects, including decreasing population and a growing share of inactive population, the primary source of the long-term, sustainable economic catching-up will be the increasing employment rate, up to a limited extent, and the advance of labour productivity. These results call for well-designed and targeted development policies in favour of human resource investments and strengthened institutional efficiency.