Experimental statistics

The volume of industrial production has more than doubled in Hungary since the turn of the millennium, the sixth largest growth among the EU member states following Ireland, Poland, Lithuania, Slovakia and Estonia.

The weight of industry is slightly higher in Hungary than the EU average, production is spatially more deconcentrated, that is, more regions have an altogether higher share in the gross value added of industry than the EU average, although this lags behind the neighbouring countries to some extent.

Within the EU industrial productivity in 2022 was continuously lower in the countries acceding the EU in the 2000s and the South European ones than in the other (Western-European and Scandinavian) member states. Considering the significance of the 4 groups of divisions with the largest weight – their joint weight reaching or surpassing 40% – there are differences between Hungary, Czechia, Poland, Slovakia and Germany, however, the decisive role of the energy industry and manufacture of transport equipment is common.

The length of a value chain in a given country, within it in given divisions measures the relation between the locally produced new value and the total output, including the value of all, not locally produced but imported goods, subassemblies. The capacity of creating new value the greater, the higher the value chain length, which can be increased by raising the proportion of domestic supplier system. Characteristically the region’s countries show a short value chain within the European Union. The ratio of gross value added of the industrial sector (without construction) compared to the output was about 25 to 26% in Hungary in the last ten years, lessening in the last two years to 21%. The shortening of value chains is related to high energy prices. The same is true for all EU member states.

Value-added content in industrial divisions shows major differences in Hungary. Value chains are generally higher in divisions with a smaller weight. The highest value-chain-lengths are typical in mining divisions, manufacture of basic pharmaceutical products, tobacco products, as well as of wearing apparel, over 45%, the lowest ones are in manufacture of motor vehicles and manufacture of basic metals, below 15%.

Industrial divisions that date back for a longer period had more time to form longer value chains, thus national industry’s performance can be raised by increasing the length of supplier chains in emerging newer sections.

Changes in industrial performance

The weight of industry within the national economy is relatively high in Hungary, accounting for 22% of gross value added in 2023 and surpassing the 21% EU average, being the 8th highest among the member states. Out of the sections of industry, manufacturing is the dominant component, providing 91% of value added of industry and 20% of the value added of the total national economy, being as such the most significant section. (For a long time, coming after manufacturing, the weight of real estate activities and that of wholesale and retail trade are the largest in Hungary). Manufacturing is significant not only in Hungary, it is in a leading place among sections in two-thirds of the EU member states. Based on so-called “highest-level section aggregates”, created by merging sections, it is true for all member states that the division concentration of the economy is quite low, meaning that the production of gross value added is not concentrated dominantly in one or another group of divisions, including industry. The Herfindahl-Hirschman index¹ , showing concentration, was between 0.13 and 0.16 in the member countries in 2023, being somewhat higher, 0.21 in Ireland.

Industrial output volume reached in Hungary the level preceding the change of regime in the second half of the decade, following the temporary decrease in the first half of the 1990s related to structural changes. The growing trend continued up until 2007, then overall output lessened between 2008 and 2012, by a yearly fluctuating performance (Figure 1). Hungarian industry started to increase in 2013 once again, industrial production volume growing up until 2019, the onset of the Covid pandemic, overall by 36%², the second highest growth rate in the EU (following Ireland). The pandemic halted the prosperity of the industry, output lessening by 6% in 2020, in 2021, however, surpassing the pre-pandemic peak, and further growing in 2022. Nevertheless, in 2023, industrial performance decreased in Hungary, similarly to most EU member states. The volume of industrial production more than doubled³ overall in Hungary compared to 2000, significantly surpassing the EU average (17%), and counted as the sixth largest growth rate (following Ireland, Poland, Lithuania, Slovakia and Estonia) among the EU member states. Industrial output in Germany, having the largest industrial capacity and being significant from the Hungarian economy’s point of view, too, increased in the same period by 13%.

We describe the divisional structure of industry by the percentual distribution of industrial value added. In the 4 most significant industrial groups of divisions of the above five countries in Figure 1 – their combined weight reaching or surpassing 40% – there are differences among the countries, however, the role of the energy industry and that of manufacture of transport equipment is decisive in most countries (Table 1).

Spatial concentration of industrial production

Different regions do not have an equal share in the industrial production of a country. Industrial centres are formed in certain regions, whereas presence of industrial sections may be sparse in others, as other divisions may have dominant positions. The forming of such centres may be due to accessibility, geographical, social, functional, development-level, historical reasons.

According to Krugman (1999) the most important factor in the geography of economic activities is concentration. His models based on the increasing returns to scale theory examine the forming of agglomerated economies. There are, in his opinion, (centripetal) forces promoting geographical concentration and opposed, (centrifugal) ones. The spatial distribution of economic activities of a given country is formed as a result of these forces. As a consequence, there is no ideal concentration level. While the agglomeration of industrial production within a country is basically a natural process, the extreme spatial, technological, sectional concentration may turn industrial production vulnerable. Spatial expansion of industrial production within a country or between countries, decreasing regional inequalities are basically positive phenomena.

Considering the topological map⁴ , the Irish South-West region (Figure 2) is the region producing the largest value added within the European Union. Regions with the highest gross value added are primarily the regions of large cities’ agglomerations (Barcelona, Milan, Dublin, Madrid, Munich, Hamburg, Paris). The West-East as well as the North-South division of the European Union is visible. The industrial share of large cities – owing to the outstanding importance of services – is relatively low.

While 10% of the regions producing the largest value added concentrate 41% of total value added, and 20% of them account for 58%, in Hungary 10% (Budapest and Pest county) produce 29% of total value added and 20% of them account for 47% (Budapest, Pest, Győr-Moson-Sopron and Borsod-Abaúj-Zemplén counties).

Compared to the national average of industrial value added, Budapest and Pest county produce significantly more in the manufacture of basic pharmaceutical products (2.32), in manufacture of coke and refined petroleum products (2.29), printing and reproduction of recorded media (1.83) and repair and installation of machinery and equipment (1.63) divisions. (Brackets show the combined ratio of Budapest plus Pest county and the national proportion within the 2022 value added).

Almost all Czech and Irish regions (except one in both countries) belong to the regions with the largest industrial gross value added (Figure 3), showing, however, different structures within the country: the Gini coefficient⁵ shows a more balanced territorial distribution in Czechia, while Ireland is more heterogeneous in regard to the distribution of industrial gross value added. Considering the actual values of the coefficients, the distribution of industrial production is the most concentrated in Ireland and Spain, the least concentrated in Slovakia (Figure 4). Values are about 0.53 for EU member states and 0.39 for Hungary.

By this token industrial production is territorially less concentrated in Hungary than the EU average. The Lorenz curve⁶ , showing deciles composed based on industrial gross value added in the EU NUTS3 level regions⁷ – corresponding to a county in Hungary – confirms this fact, too, signifying a higher-level industrial concentration in the EU than in Hungary (figure 5).

Territorial concentration in Hungary changed in the last more than twenty years as shown in figure 5. The figure shows the change of two indicators, on the one hand the value of the Herfindahl-Hirschman-index based on the industrial gross value added of the 19 counties and Budapest at current prices, on the other hand, the value-added ratio changes in Budapest and Pest county.

The extent of territorial concentration of industrial gross value added in Hungary was rising until 2012, decreased until the end of the 2010s, then started to increase once again in 2022.

Industrial value chains in Hungary and in the European Union

The value of industrial gross value added, the creation of new value is basically defined partly by the production, output of businesses, partly by the intermediate consumption, input necessary for producing these goods and services (purchase of fuels, base material purchases etc.) The difference of the two gives the gross value added.

The length of value chains is an important characteristic of an economy. It shows how much of the total value chain, starting from research and development, material and parts supply, assembly, to sales, then services is present in the economy. Based on that, the length of value chains measures the quotient of the gross value added and the output (Csath, 2020). Measuring value chain length is not an easy task. Locally produced new value in relation to total output in a given country, within it in the divisions, including the value of all, not locally produced, but imported goods, parts, may be used as a proxy indicator. Thus the longer the value chain, the larger the new value-producing capacity. The length of value chains may be increased basically by the domestic supplier system. The ratio of gross value added of the industrial sector compared to output was about 25 to 26% in Hungary in the last ten years, lessening in the last two years to 21%, mainly due to price ratio changes. The same is true for all EU member states. The value chain of the division of construction, delimited from industry, was always significantly longer, its value reaching 36% in 2022.

The change in value chain length is impacted, beside volume and price processes, the composition-effect, too. If production shifts towards lower or higher value-added divisions, it does not mean a factual change, but a composition-effect in regard to the average value chain length of total industry. By observing value-added content and its change through filtering the composition-effect (supposing an invariable output distribution among divisions) it may be concluded that more significant changes are not triggered by composition-effects, however, their impact was perceptible during certain years, e.g. from 2009 to 2010 the standardised ratio decreased to a lesser degree (meaning the composition-effect caused a part of the change), then it was “corrected” in 2011 in the opposite direction (Figure 8).

Price ratio changes played a major part in the significant lessening of value-added content in 2021-2022. The price level of the intermediate consumption grew at a much higher extent than that of value added⁸ in both years, and as a result, the value chain length, calculated based on current prices data, decreased owing to price changes, too (Table 2). Volume changes support this conclusion, the volume of intermediate consumption increased more (or decreased to a lesser degree) both in 2021 and 2022 (thus material intensity of production rose), this also lessening the value-added ratio calculated based on current prices data.

On average value chain length is higher in the lesser weight representing divisions of the country. Value-added content shows significant differences in industrial divisions: the highest value chain lengths are in mining divisions, pharmaceutical production, tobacco products, manufacture of wearing apparel, over 45%, the lowest ones are in manufacture of motor vehicles, trailers and semi trailers, manufacture of basic metals, under 15% (figure 9).

Industrial divisions that date back for a longer period had more time to form longer value chains, thus national industry’s performance can be raised by increasing the length of supplier chains in emerging newer sections. Shortening of value chains is unequivocally related to high energy prices. Their lapse would benefit the value added of the Hungarian industry.

Comparing value chains on a regional basis shows that in the case of Hungary, Slovakia, Poland and Czechia the ratios of value added to output are on a similar level, but these lag behind the EU average (Figure 10). The phenomenon is firstly due to the fact that production capacities grew in segments of the industry where inputs necessary for production are limited, generating a significant import demand in order to materialise the output.

Relative short value chains observed in industrial divisions may at the same time imply high import dependence or high producer prices, which hold the value added-producing capacity of the economy back. Decreasing import dependency as well as the development of domestic supplier networks participating in production may contribute to a rise in value chain length, thus to the improvement of value producing capabilities of production divisions and to the strengthening of the basis of economic growth.

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