Budapest Working Papers on the Labour Market BWP - 2000/8
The objective of this paper is to examine the nature and determinants of the regional distribution of foreign investment enterprise (FIE) employment in Hungary. Factors explaining the spatial concentration of foreign direct investment (FDI) inflows are investigated and the impact of regional FDI inflows on the performance of regional labour markets is measured. The main conclusion is that the regional distribution of FDI inflows is strongly influenced by the educational level of the local population, the externalities of urban agglomerations and the geographical location of regions. Additional advantages are identified in the case of those regions adjoining the Western-Slovakian, Austrian and Slovenian borders. A self-reinforcing process can be observed here: FDI is attracted to regions where unemployment is lower due to better educational levels and geographical advantages, while an increase in FDI in turn creates new job opportunities. We believe, however, that education and geographical location are in large part merely symptomatic of other, underlying factors. Uncovering these underlying factors has obvious policy implications: location as such cannot be changed, for example, but these background variables could be modified by changes in regional policy.