Regional Integration and Production Fragmentation -the Case of the Hungarian Telecom Industry

Abstract: This paper analyzes production fragmentation in the telecommunications industry, using Hungary as a case study. The driving forces of production fragmentation are partly industry and product characteristics but also conditions in the environment, among which transaction cost are especially important. Because of its characteristics, the telecommunications industry has high fragmentation potential and due to Hungary’s locational advantages the country is likely to host firms producing some components in the industry. Since production fragmentation gives rise to changes in specialization, calculations of revealed comparative advantage can indicate fragmentation. It is shown that Hungary specializes in many of the goods in the telecommunications industry, as defined in the Standard International Trade Classification. It is therefore concluded that Hungary is taking part in an international production sharing network in the telecommunications industry.