Measuring economic duality on the basis of input-output data

Abstract

An important structural challenge for the Hungarian economy is the weak linkages between foreign-owned and domestically-owned enterprises and the highly productive sectors and enterprises that have emerged through foreign investment in working capital. This restricts the diffusion of technology between the two segments of firms, and hence the broad-based growth of productivity in the Hungarian economy. This phenomenon, known as economic duality, is an important part of the catching-up challenges faced by Hungary and other Central and Eastern European countries, but it is also a global phenomenon, recently referred to in the literature as the factory economy. In this paper, we use a new database to define input-output networks separately for domestic and foreign-owned sectors, showing that economic duality refers to a production or supplier network structure in which network linkages are systematically weaker and sparser in certain segments. On this basis, we argue that economic duality can be measured not only from an outcome-side approach to productivity differences but also from the side of the specific structure of supplier networks, with methods based on input-output data at the appropriate level of detail. In this paper, we introduce possible indicators of duality measurement based on input-output structure and use them to analyze duality in the Hungarian economy and in some other Central and Eastern European countries using a database that contains input-output tables along the usual sectoral breakdown as well as a domestic/foreign breakdown of ownership. The results confirm the dual structure of the Hungarian economy and the economies of the other countries under study and draw attention to the fact that duality is stronger in manufacturing sectors.