Impact of human capital and technological diffusion on productivity in Hungary

The empirical evidence proved that the level of human capital is the most important factor in the long-term decisions of foreign direct investors in Central Eastern Europe and in Hungary (Katona 2008). On the other hand the level of human and technological capital in the country determines the absorptive capacity of the host economy and consequently the intensity of the so called spillover effect, which means diffusion of the foreign technology, knowledge, managerial skills from foreign companies to local firms. This effect is a catalyst of the increasing productivity in the host economy. Human capital and spillover of the foreign technology had a larger effect on growth in new accession countries than in the other regions of the EU. This research result underlines the role played by labour forces in the production process in Central Eastern Europe and in Hungary as well (Paci-Marrocu, 2013)

 This paper examines the impact of knowledge —human / technological capital, and spillover — on firm productivity in Hungary within a Cobb–Douglas production function model, which includes the traditional tangible inputs, as well as knowledge assets. The proxy for human capital is personal cost per unit of labour, technological capital is calculated by the value of R&D per unit of labour, and the spillover effect is measured by the foreign share in the sectors’ total equity which may have an indirect impact on the productivity of the companies with little or no foreign share.

The methodology used the database of Hungarian enterprises developed by Hungarian Statistical Office. The investigated period includes 18 years between 1996 and 2014. Data was taken from five particular years such as 2000, 2004, 2008, 2011, 2014, from which the change in factor productivity was examined and compared to the level in 1996(t0).  The database contains all relevant information from annual reports, e.g. balance sheets, profit and loss figures, etc.

 As a result of this analysis I expect that the impact of knowledge assets concerning labour input is basically determining total factor productivity in Hungary, but the effect of R&D activity depends on ownership of the firm. Probably foreign shares in the firms’ equity and in the sectors’ total equity have a positive influence on total factor productivity in individual firms and in all sectors as well.

JEL: F20, G30