Wherever the number of well-functioning and high-performing businesses grows, added value increases, employment rises and supply broadens. What is more, the well-being of the community also improves. Based on international and domestic research results, the number of functioning SMEs grows most in more affluent, urbanised settlements and near the sites of large companies, with low business tax also contributing to this growth. In Hungary, it has been a trend since the regime change that the number of businesses in relation to the population grows most dynamically in the central region and in Central and Western Transdanubia. Between 2010 and 2023, the density of businesses nationwide increased by 39% on average, but regional disparities also grew. The Sándor Demján Programme, with a budget of more than HUF 1,400 billion, primarily supports SME investments in regions that lag behind the national average in terms of business density and economic development.
The results of research related to regional economics and urban economics consistently show that economic geography characteristics, the infrastructural development of a given area (settlement, district, county etc.) and its urban nature greatly influence the number and economic performance of businesses operating there. Business density is an economic statistical indicator that makes business activity comparable across different regions and periods. Business density indicates how many businesses there are per 1,000 inhabitants within a given geographical unit (e.g. country, region, county). It is not surprising that the number of operating businesses is high in settlements with a large population. But what determines the level of business density?
Wealthy local governments, nearby large companies, urbanisation
A study examining the spatial distribution of businesses operating in one of Poland’s provinces found that the factor most closely related to business density is the tax revenue per capita of local governments. The more tax revenue a local government has (per capita), the more SMEs operate in its area. On the other hand, SMEs are more densely located near the premises of large companies, while technology parks and special economic zones have no significant impact on business density. The explanation for these observations lies in the fact that SMEs mainly serve the needs of local consumers and large companies, so they tend to cluster where local consumption is higher and there are more large companies.
One of the strongest findings of the research is that economic geography factors (level of urbanisation, road network density, rail network density, distance from large cities, distance from large companies, distance from motorways and main roads) significantly determine the level of development of SMEs in a given area. In the case of micro-enterprises, local conditions are decisive, while in the case of medium-sized enterprises, it is larger-scale factors, such as district and county factors.
The spatial characteristics of the economy also influence the willingness of businesses to invest. According to the results of a recent Swedish study, the investment cash flow sensitivity of SMEs is determined to the greatest extent by the degree of urbanisation of the area in which they operate. In Sweden, the differences between regions are small and the average level of digitalisation of SMEs is high. Nevertheless, the study shows that there is a significant difference in the average investment volume of SMEs depending on whether they operate in urban or rural areas. SMEs in large cities make proportionally more investments and use credit to a greater extent for their investments. SMEs operating in smaller towns far from large cities, on the other hand, typically rely on their own cash flow to invest, if they are willing to invest at all. These SMEs are thus caught in a double trap, as their revenues, which serve as the source of their investments, are typically lower than those of their competitors in large cities.
Good neighbourhood, low business tax, outstanding central region
Based on an analysis of the economic spatial structure of the settlements in the Győr agglomeration, the settlements with the highest business density are those located near settlements with a high population and business density, and where the business tax rate is lower than average. Based on the results of the study, where business density is higher, employment concentration is also higher, and businesses with higher turnover are also spatially concentrated. The characteristics of the spatial structure of the economy highlight the factors that influence businesses considering setting up in a location when choosing their site, so it is worth paying attention to business density data when planning and implementing settlement and economic development measures.
The current characteristics of the regional concentration of Hungarian SMEs and regional inequalities are presented in the most detail in a comprehensive analysis published in the journal Területi Statisztika (Regional Statistics) in 2021. The study identifies the primary role of the capital and the central region and the secondary role of Central and Western Transdanubia in terms of business density. This regional characteristic has accompanied Hungary’s economic and territorial development since the regime change. The advantage of the central region is also reflected in the gross value added and turnover of SMEs, with this region accounting for more than 40% of gross value added and turnover on average, and more than 30% of employment on average. Between 2008 and 2020, the performance of SMEs in the western part of Hungary increased the most, with the centre of gravity shifting steadily westwards, mainly due to the growth in production investments by large multinational companies and the proximity of Western European markets.
Density is increasing
County-level business density data can be calculated from the Hungarian Central Statistical Office’s data on active businesses and population. In 2023, Budapest had a population of 1.67 million and more than 245,000 businesses, with a business density index of 147. Outside the capital, business density exceeded 100 only in Pest county, with Veszprém and Győr-Moson-Sopron counties coming in second and third, approaching that figure from below. The indicator recorded its lowest values in Jász- Nagykun-Szolnok, Nógrád and Borsod-Abaúj-Zemplén counties. Looking at the business density map of Hungary, the advantage of the central region and the western part of the country is striking.
The figure can be referenced here: https://datawrapper.dwcdn.net/NT0SJ/1/
It is worth adding the temporal dimension to the spatial one, comparing the 2023 map with the 2010 one. The national average value of the business density indicator increased by 39% over 13 years. During this period, Hungary’s population decreased by 4.1%, while the number of operating businesses increased by 33.3%, or exactly one-third. Among the counties, the largest increase in business density was in Pest county, at around 48%, while the smallest increase (29%) was in Heves county. Comparing the standard deviations of the county business density data for 2010 and 2023 (13.5 and 18.1), it can be concluded that this economic statistical indicator shows an increase in regional differences during the period under review.
The figure can be referenced here: https://datawrapper.dwcdn.net/SO0n8/1/
Sándor Demján Programme: reducing regional disparities
It is worth examining the extent to which the spatial aspects of the economy, regional economic considerations and the findings of recent research are reflected in the calls for proposals of the Sándor Demján Programme, which has a budget of more than HUF 1,400 billion.
One of the nine pillars of the SME support programme launched in November 2024 is the “1+1” SME Investment Stimulus Support Programme. This programme supports investments in technology change, primarily equipment purchases, by domestically owned micro, small and medium-sized enterprises in order to develop their production capacity and enable them to manufacture higher value-added products. A business can receive between HUF 5-200 million in support. The state provides 50% of the investment value of the business as a non-repayable grant (hence the “1+1” in the programme’s name).
The “1+1” SME Investment Stimulus Support Programme was launched six months ago with a budget of HUF 48 billion, but due to significant interest from applicants, its budget has since been increased by 170% to HUF 130 billion. At the beginning of July, the Ministry for National Economy announced that 1,325 applications had been approved for support, with the total amount of support awarded reaching HUF 104 billion.
From the perspective of reducing regional disparities, it is noteworthy that in its decision-making round on 13 June, the Ministry for National Economy focused exclusively on businesses operating in the least developed statistical regions with the lowest average business density. At that time, 128 SMEs operating in Northern Hungary, Northern Alföld, Southern Alföld and Southern Transdanubia received support totalling HUF 12 billion. As of the decision round on 7 July, nearly two-thirds of the grants awarded went to these four regions, where only 44 per cent of the Hungarian enterprises operate. Based on the decisions made so far, most of the support goes to enterprises in Northern Alföld, amounting to approximately HUF 22.6 billion.
Spatiality, distances and the differentiated characteristics of the land surface greatly influence the nature, results and efficiency of economic activity. Examining the spatial dimension of the economy provides information that can be put to good use in the planning and implementation of settlement and economic development programmes. Based on international and domestic research results, the number of operating SMEs is growing most rapidly in more affluent, urbanised settlements and regions as well as in the vicinity of large companies’ premises, with low business tax rates also contributing to this growth. In Hungary, it has been a trend since the regime change that the number of businesses in relation to the population grows most dynamically in the central region and in Central and Western Transdanubia. Between 2010 and 2023, the density of businesses nationwide increased by 39% on average, but regional disparities also grew. The Sándor Demján Programme, with a budget of more than HUF 1,400 billion, primarily supports SMEs’ investments in technological change precisely in those regions that lag behind the national average in terms of business density and economic development. An increase in the number of well-functioning and successful businesses results in greater added value, higher employment, a wider range of products and services, and an overall increase in prosperity. The prosperity of the entire community can be increased by reducing regional disparities.
Economic analyst. He graduated from Eötvös Loránd University with a degree in mathematics and economics. His areas of expertise are the digital economy, the economics of innovation, and the world of SMEs. He is married and the proud father of an adorable little boy.
