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Regional industrialization, inter- firm coordination and inequalities in Central Europe Bob Hancké (LSE) ESRC seminar Warwick Business School 5 June 2009.

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Presentation on theme: "Regional industrialization, inter- firm coordination and inequalities in Central Europe Bob Hancké (LSE) ESRC seminar Warwick Business School 5 June 2009."— Presentation transcript:

1 Regional industrialization, inter- firm coordination and inequalities in Central Europe Bob Hancké (LSE) ESRC seminar Warwick Business School 5 June 2009

2 Outline  Key point of presentation: even if regional economic development takes a turn for the better in CEE, regional inequalities are likely to result  Three steps in argument Leading sectors FDI and firm-level adjustment Regional agglomeration and regional ineqalities  Based on Bob Hancké & Lucia Kurekova, Varieties of Capitalism and Economic Governance in Central Europe. Final report for Project CIT1-CT (NewGov STACEE), September 2008 [available at newgov.org/database/DELIV/D20D09_Final_Report_STACEE.pdf, accessed 21 Nov 2008].http://www.eu- newgov.org/database/DELIV/D20D09_Final_Report_STACEE.pdf

3 1. Leading sectors  Proxied through exports  Proxy for upgrading, type of economic production, level of economic activity and economic development  Defined by asset specificity: labor vs. capital intensity (Greskovits, 2005) Basic sectors:  Light-basic: intensive neither in physical nor human capital, but unskilled labor: cork and wood, textile, rubber, furniture manufacturing, clothing and accessories and footwear  Heavy-basic: intensive only in physical capital: food, live animals, beverages and tobacco, fuels, vegetable oils, iron and steel, pulp and paper, non- ferrous metals Complex sectors  Light-complex: only human capital intensive: pharmaceuticals, office and data processing machines, electrical machinery, scientific equipment, optical goods, clocks  Heavy-complex: both physical and human capital intensive: chemicals, machinery and equipment, road vehicles and transport equipment

4 Leading sectors and country differentiation

5 2. FDI and firm-level adjustment  Sectoral analysis suggested different time horizons  Time horizons related to level of fixed costs and asset specificity  Long v. short-term horizon for amortisation of investment

6 Example: Automotive industry in CEE  Firms in automotive industry: Fastest-growing ‘complex’ sector in CEE since late 1990s; Very large production numbers (almost 3 Mio cars annually); Within 200km radius; Common supplier network; Recruitment among same workforce

7 CountryInvestorLocationStart Date Type of investment/ activity ProductsVolume Czech Republic Volkswagen/ŠkodaMladá Boleslav, Kvasnice, Vrchlabi 1991BrownfieldOctavia, Fabia Roomster, Superb 450,000* TPCAKolín2002GreenfieldPeugeot 107 Toyota Aygo Citroen C1 300,000* HyundaiNošovice2006Greenfieldi30300,000* Hungary SuzukiEsztergom1992GreenfieldIgnis, Justy Swift, SX4 Fiat Sedici 300,000* Audi (VW)Gyor1992GreenfieldTT40,000* Poland FiatBielsko-Biala1991BrownfieldSeicento Panda 250,000* VolkswagenPoznan1993N/ATransporter Caddy 50,000* Daewoo/FSOWarsaw1996BrownfieldNubira, Matiz35,000 Opel (GM)Gliwice1998GreenfieldAgila, Astra Zafira, Wagon R+ 120,000* Slovakia VolkswagenBratislava1991 Brownfield Polo, Touareg Audi Q7, Porsche Cayenne (assembled in Leipzig) 300,000* PSATrnava2003Greenfield207450,000* KiaŽilina2004GreenfieldCee’d, Sportage300,000*

8 Geography of automotive sector in V4

9 Bottlenecks and coordination  Bottlenecks: collective goods and emerging forms of coordination Example: low supply of skilled labour, because little adequate training, labour emigration, stock depleted; poaching of trained workers  Collective action problems: poaching resolved through inter-firm cooperation  Islands of low-level inter-firm coordination, organized outside standard governance structures

10 3. Regional effects – the plus side  Devolution of supply-side policies to local authorities  Structural funds as development aid  From low-wage location to high value- added manufacturing; compare with Spain & Portugal 1980s; unit value rising, not falling after 15 years of re-industrialization;  Emergence of highly ‘balkanized’ local industrial systems, organised around large foreign firms

11 The dark side of industrial development: agglomeration and regional dualism  Regional activism + FDI produce, via network externalities, regional agglomeration effects: sophisticated firms go where other sophisticated firms already are.  Concentration of sophisticated investment in a limited number of already well-off regions  As rich regions become richer, poor regions become relatively poorer

12 Conclusion  Even under best possible circumstances – fast-growing, sophisticated industry, inter-firm coordination, and regional actors who play a role in setting up supply-side institutions (as we can find in V4) – CEE faceS dramatic regional inequalities, which are likely to increase.


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