Exploring firm performance in Central and Eastern European regions: a foundational approach 257Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.DOI: 10.15201/hungeobull.72.3.4 Hungarian Geographical Bulletin 72 2023 (3) 257–285. Introduction The decade after the global financial crisis and recession has brought new economic develop- ment challenges for Central and Eastern Eu- ropean (CEE) countries and their sub-national territorial units. The slow growth of the post- crisis recovery period was replaced by a high- pressure economy in the mid-2010s, which was brought to a halt by the 2020 coronavi- rus crisis. Against the backdrop of adverse demographic trends, including a shrinking and ageing population and the ensuing la- bour market tightness, CEE countries can no longer rely on extensive employment growth as a prerequisite for long-term economic growth, instead, productivity improvement should be a priority. Despite the fundamen- tal role of foreign investments in the market and global value chain integration of the CEE macro-region and the associated economic growth and productivity gains, FDI by itself is insufficient to ensure sustained catching up (Gál, Z. and Lux, G. 2022). The CEE re- gion is not homogeneous in this respect, since the Baltic States, Slovenia and Czechia have shown a solid convergence performance in terms of per capita GDP relative to the EU average and the Human Development Index. This heterogeneity is partly explained by the different institutional environment and the divergent growth models followed by the countries of the macro-region. As a result, the countries are not at the same stage of progress towards the ‘high road’ of competitiveness (Molnár, E. et al. 2020), while some of them may overcome the so-called middle-income trap (see Győrffy, D. 2022; Mátyás, L. 2022). 1 Centre for Economic and Regional Studies, Institute for Regional Studies, 22 Papnövelde utca H7621 Pécs, Hungary. E.mails: egyed.ildiko@krtk.hu, zsibok.zsuzsanna@krtk.hu Exploring firm performance in Central and Eastern European regions: a foundational approach Ildikó EGYED 1 and Zsuzsanna ZSIBÓK 1 Abstract Economic development in post-transition countries is dominated by the performance of capital cities, although second-tier cities are also important drivers of development. However, peripheral regions struggle with problems of adaptation and response, often leading to brain drain and economic decline. Industrial strategies highlight those tradable sectors of the economy that favour leading edge KIBS firms and advanced manufacturing, while neglect- ing the residentiary economy that is more sheltered from competition and provides jobs in local production and services sectors. Our research is inspired by the burgeoning literature of the ‘foundational economy’ approach to economic development, focusing on mundane economic activities providing essential goods and services, and we investigate the differences of economic performance across the NUTS3 regions in selected CEE countries. We study regionally aggregated, firm-level financial and employment data including sectoral classification of the companies with 10+ employees. Our position is that a well-functioning foundational economy is necessary for the whole local economy to work efficiently in the long run. Moreover, increasing productivity in the foundational economy should lead to more regionally balanced growth than an exclusive focus on the ‘frontier firms’ that are highly concentrated spatially as the regional productivity gap in the case of certain foundational activities is not necessarily large. Keywords: foundational economy, regional policy, firm-level data, labour productivity, Central and Eastern Europe Received June 2023, accepted August 2023. Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.258 Due to the post-1989 privatization or dis- solution of potential national champions and the weakness of home-grown mid-sized firms, the FDI-driven model of so-called dependent market economies has no viable alternatives (Nölke, A. and Vliegenthart, A. 2009). Foreign multinational enterprises are at the forefront of market-driven reindus- trialization, the patterns of which are highly heterogeneous across the regions (Nagy, B. et al. 2020). The weaknesses of FDI-driven models (relying on low labour costs, skilled labour, tax advantages and proximity to the West) are manifest in the absence of domes- tic innovation-leading companies and head- quarters, compounded by a shrinking work- ing-age population (Bodnár, G. et al. 2022). The economic development of post-transition countries is heavily dominated by the per- formance of their capital cities, although sec- ond-tier cities, as growth poles, are also im- portant drivers of development. The presence of high-quality residential environments, im- proved connectivity, high-skilled occupations and increasing populations exert a positive impact on the employment dynamism of re- gions and cities outside the capital. However, regions left behind by economic transforma- tion (Weresa, M.A. 2017) often struggle with problems of adaptation and response, leading to brain drain, population outmigration and economic decline. This tendency is reinforced by industrial strategies’ overwhelming fo- cus on the tradable sectors of the economy, favouring leading edge KIBS firms and ad- vanced manufacturing, while conspicuous- ly neglecting the residentiary economy (see Leaver, A. and Willams, K. 2014), a sector relatively sheltered from competition and a source of locally anchored production and services jobs acting as important ‘stabilizers’. Our research is inspired by the burgeoning literature on the ‘foundational economy’ ap- proach to economic development (Russell, B. et al. 2022), i.e., mundane economic activ- ities providing essential goods and services (see Bentham, J. et al. 2013), focusing on eco- nomic performance across NUTS3 regions in four CEE countries, namely, the Visegrád Four (Scott, J. 2021) with Czechia, Hungary, Slovakia and Poland. We consider the inclu- sion of a foundational approach in devel- opment policy to be highly beneficial in the CEE economic context, which is burdened by a dualistic economic structure (Nagy, Cs. et al. 2020), excessive spatial disparities and increasingly left-behind places, with no ap- parent signs of improvement in this respect over the last few decades. The foundational approach breaks with the singular notion of ‘the economy’, operating with multiple econ- omies and zones of activities that show very different features. In line with the literature, our article starts from the view that a strong foundational economy can strengthen the cohesion of urban and local economies, fur- thermore, it can have a higher relevance for peripheral, disadvantaged regions, saving them from the circular and mutually rein- forcing spiral of deterioration (Bosák, V. et al. 2023; Martynovich, M. et al. 2023). The novelty of our research lies in explor- ing the role of the foundational economy in the CEE region based on firm-level data in a regional aggregation, as these aspects have not been scrutinized in the CEE re- gional science literature before. Given that the Visegrád countries are part of the Central European manufacturing core, the macro-re- gion follows a different path towards the tertiarization of the economy relative to the Western European economies. Consequently, the weight and role of the foundational econ- omy in the CEE region might show some specific features compared to those identified in the existing literature. In the next section we summarize the theoretical considerations underlying the research, then the empirical strategy will be introduced. In the fourth sec- tion empirical results and the discussion are presented and the last section concludes. Theoretical considerations In their Manifesto for the foundational econ- omy published in the mid-2010s, the Foun- dational Economy Collective, a group of 259Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. Manchester-based researchers advocated for a fundamental renewal of economic policy, refocusing it from the coveted frontier high- tech sectors to the less glamorous zone of the foundational economy (FE), which provides ex- istential goods and services designed to ‘keep us safe, sound and civilized’ (FE Collective, 2020). Inspired by the works of Polányi, K. (1944), and Braudel, F. (1981) the FE Collec- tive militates for re-embedding the economy into social and environmental contexts, on the grounds that capitalism has been allowed to expand into areas of society where mar- kets should not belong (Reeves, R. 2018, 25). Breaking with the GDP-oriented singular no- tion of the economy that emerged with the rise of national income accounting in the mid- 20th century, the FE reframes the economy as diverse, composed of multiple zones of activi- ties (Table 1) that show very different features and consumption patterns, and can be guided by economic principles other than market ex- change (FE Collective, 2020). Operating outside the sphere of market ex- change and public provisioning, the unpaid sector of the core economy (family and com- munity) comprises 40 percent of working time and is dominated by women; it is analo- gous to the Braudelian ‘infra-economy of ev- eryday life’ where the majority of the world’s population lived in the early modern period. Together with the core economy, the founda- tional zone emphasizes collective liveability and belonging, and is an important source of place attachment (MacKinnon, D. et al. 2022). The foundational zone encompasses the sphere of infrastructure-based collec- tive consumption through locally grounded provisioning systems and services described as low risk, low return activities. Covered only partly by major databases yet a source of roughly 40 percent of jobs in European countries (nearly 70% when considering the overlooked economy), the FE produces mundane and sometimes taken for granted goods and services that are vital for every- day life and the satisfaction of human needs (Barnthaler, R. and Gough, I. 2023). As de- fined by Bowman, A. et al. (2014), FE goods Ta bl e 1 . T he z on al v iew o f t he ec on om y in a fo un da tio na l p er sp ec tiv e Ec on om y Fo rm o f co ns um pt io n Ex am pl es Bu si ne ss m od el So ur ce o f r ev en ue O rg an is at io na l m ob ili ty a nd m or ta lit y Po st -1 98 0s pu bl ic p ol ic y C or e Ec on om y N on -e co no m ic Pa re nt in g (v ol un - ta ry a ct io n, e tc .) G ift in g: n o ch ar gi ng or re co ve ry o f c os t G oo dw ill Re -in ve nt ed fo rm s (e .g . di vo rc e an d m ar ri ag e) V ol un te er s Fo un da tio na l Ec on om y D ai ly e ss en tia ls di st ri bu te d vi a in fr as tr uc tu re of n et w or ks a nd br an ch es M at er ia l ( e. g. fo od , ut ili tie s) ; Pr ov id en tia l ( e. g. he al th , c ar e, s oc ia l ho us in g) W as lo w ri sk , l ow re tu rn , l on g tim e ho ri zo n fo r p ub lic an d pr iv at e pr o- vi de rs Ta x re ve nu e fo r fr ee a t p oi nt o f u se or s ub si di se d; o r re gu la te d pr iv at e pu rc ha se Lo w m ob ili ty a nd m or ta lit y as n et w or ks an d br an ch es ’g ro un d’ fir m s, s ta bl e de m an d Pr iv at is at io n, ou ts ou rc in g, sh ar eh ol de r va lu e O ve rl oo ke d Ec on om y O cc as io na l p ur - ch as es o f m un da ne , cu ltu ra l n ec es si tie s H ol id ay s (a m ea l ou t, ha ir cu ts , e tc .) Fi na nc ia lis ed c or - po ra te s vs S M E an d m ic ro p ro li fe st yl e an d ge tti ng b y D is cr et io na ry fr om m ar ke t i nc om e H ig h m or ta lit y in s m al l fir m s an d st ru ct ur al sh ift s Be lo w th e po lic y ra da r i f fi rm s to o sm al l t o ta ke ou ts id e ca pi ta l Tr ad ab le Ec on om y (A sp ir at io na l) pr i- va te p ur ch as e C ar s, e le ct ro ni cs , pr iv at e ho us in g hi gh ri sk , h ig h re tu rn , s ho rt ti m e ho ri zo n M ar ke t i nc om e fr om w ag es (s ta te su bs id y fo r R & D , t ra in in g, et c. ) H ig h m ob ili ty a s fo ot - lo os e un de r f re e tr ad e; cy cl ic al d em an d Bu si ne ss fr ie nd - ly , s tr uc tu ra l re fo rm So ur ce : T he F ou nd at io na l E co no m y C ol le ct iv e, 2 02 0. Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.260 and services are partly non-market, they are consumed by all citizens regardless of income, geographically distributed, and typ- ically sheltered by local monopoly or politi- cally franchised. While the providential foun- dational economy is about human interaction and essentially represents the modern wel- fare state (health and social care, education, police, public administration), the material foundational economy is more concerned with things, delivering ‘essential need satisfiers’, e.g., pipe and cable utilities, public trans- port, telecommunications, food distribution, housing or banking services. The FE is sur- rounded by an external zone of non-essential provisioning labelled as the ‘overlooked econo- my’, which provides occasionally purchased comfort goods and services (e.g., haircuts, house repairs, holidays from work or a meal out) that are important to well-being. The export-oriented tradable economy, de- scribed as the least welfare-critical zone, is associated with competitive success and economic growth-focused strategies, which either downplay the importance of sheltered and low-productivity FE sectors or present them as levers for increased productivity, with a view to increment GDP. FE theorists note how the overrated high-tech and R&D intensive industries have failed to deliver wealth and well-being for the majority of the population, employing around 4 percent of the workforce in European countries (FE Collective, 2018). The preoccupation of eco- nomic policy makers with high-tech and next generation industries follows from their de- piction of the economy as an iceberg, giving visibility to the narrow zone of the tradeable economy, while a large part of the economy, despite its strategic importance for nation- al prosperity, remains hidden from view (Ibid.). Whereas the building of the foun- dational economy in Western Europe was a century-long achievement dating back to the 1870s, its dismantling through neoliberal re- forms from the 1980s has undermined both the material and moral basis of foundation- al provision, which is inherently normative, as stressed by the FE Collective. Neoliberal business-friendly regimes encouraged ex- tractive corporates in FE sectors (such as transport, energy, telecommunications, or re- tail) that fail to adequately provide FE goods and services, without imposing any duties on them (Bentham, J. et al. 2013; Gough, I. 2020). To challenge the dominance of invest- ment-averse, financialized and shareholder value-driven business models in the mar- ket-provided FE, there is a need for the remu- nicipalization of some commodified essential services, increasing the local accountability of economic actors and the reform of top-down, centralized policymaking (FE Collective, 2018; Hansen, T. 2022). Another policy recommendation concerns implementing social licensing whereby the local state could subject FE businesses that provide welfare-critical services to various eco-social obligations (payment of living wages, fair treatment of suppliers, distribution of econom- ic benefits, support for community activities, building local value chains, etc.) in exchange for their right to trade in partially sheltered sectors, on grounds that it is citizen tax rev- enues and direct household expenditure that sustain foundational activity (Froud, J. and Williams, K. 2019). A new social contract with the private sector, as argued by Marques, P. et al. (2018) would allow deprived areas to negotiate better deals for their communities. Social licensing proposals rest on the principle that regardless of ownership, all FE business- es should be treated as in the public domain, not by the means of renationalisation, which only changes ownership, but constitutional reforms (FE Collective, 2018; Gough, I. 2020). Accordingly, their primary focus should not be profitability, which always involves value extraction from the public realm but rather to ensure that wealth creation is generative and rooted (Berry, C. 2018; Evenhuis, E. et al. 2021). In this regard, the FE has many parallels with the Community Wealth Building movement, which stresses the key role of local anchor in- stitutions in local wealth retention and fosters the creation of local cooperatives and locally owned firms with social value embedded in their practices (Crisp, R. 2022). 261Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. The literature on diverse economies that seeks to explore economic spaces of alterity and, more recently, well-being economies that encourages well-being-driven businesses with social and environmental goals, is sim- ilarly critical of exploitative and extractive business practices whose alliance with var- ious forms of concentrated power can exert undue influence on trajectories of change (Gibson-Graham, J.K. and Dombroski, K. 2020; Fioramonti, L. et al. 2022). The FE’s zonal view of the economy fits well with the diverse economy (DE) concept developed by Gibson-Graham, J.K. (2008) as a critique of capitalocentric models downplaying the role of non-market transactions and unpaid household work in the economy, and show- ing a blindness to alternative development paths pursued by places where waged econ- omy is not the primary source of well-being to people. In post-socialist CEE countries, for instance, the survival of diverse economic ac- tivities plays a significant role in the social reproduction of households (Fabula, S. et al. 2021; Vigvári, A. 2023). Gibson-Graham’s representation of the economy as an iceberg intends to unsettle the hegemony of capital- ist practices by bringing visibility to multi- ple forms of labour and economic activities beneath the waterline that are usually hid- den from view. For Novy, A. (2022), FE rep- resents a promising new development vision contrasted with the short-term strategies of liberal globalism and nationalistic capital- ism, both ill-equipped to provide adequate responses to the current social-ecological cri- sis. Bärnthaler, R. et al. (2021) interrogate the potential of FE to instigate a social-eco- logical transformation that may overhaul capitalist nature-society relations guided by an extractive logic, in favour of a good life within the planetary feasible. The FE perspective seeks to refocus indus- trial policy from narrowly defined manufac- turing sectors producing tradable and export- able goods and services to the foundational sectors that are key to rebalancing regional economic growth. Aiginger, K. (2015) claims that welfare increases in high income coun- tries require industrial policy that is based on high road competitiveness, defined as the ability to promote beyond GDP goals while focusing on developed countries’ compara- tive advantages. Low and high road strate- gies to regional development co-exist to this day, the former (neoliberal approach) centred on lowering costs (wages, taxes, energy), la- bour and environmental standards; the latter (mainstream progressive approach) relying on higher wages and productivity, boosting capabilities in education, innovation, ICT, and ecological excellence (Scandinavian style). As suggested by Berry, C. (2018), the subject of industrial policy should be con- ceived as a multi-layered economy, with the foundational sector representing a new eco- nomic entity in its own right. An FE-informed industrial policy (see Bowman, A. et al. 2015) that delivers social value would prioritize the essential needs of society and workers, such as access to universal basic infrastructure, alongside the advancement of early-stage research, energy supply, KIBS, and industri- al growth, with the latter always generating conflict between winners and losers. This highlights the non-neutrality of state agency, which is always selective, empowering some actors or groups, identifying lead firms or key segments of value chains as the main drivers of capital accumulation, privileging certain spatial and temporal horizons, strategies, paths, and identities over others (Jessop, B. 2014; Teixeira, T. 2023). Linking spatially uneven economic de- velopment to the neoliberal restructuring of capitalist production, Wigger, A. (2023) defines the state’s role as a facilitator of busi- ness-driven industrial upscaling processes, subordinating the interests of research in- stitutes, labour and society to large private interests. Before the pandemic, debates on new industrial policy and strategic autono- my brought into sharp focus the EU’s stra- tegic selectivity, its commitment to support advanced economies in developing frontier technologies at the expense of left-behind places, i.e. regions and cities outside the narrow scope of mission-oriented indus- Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.262 trial policies, which rely on R&D expendi- ture as the main driver of innovation-led growth. Morgan, K. (2021) claims that it is in this very space that the FE, due to its spatial and social inclusivity, makes its most important contribution. Left-behind places, as the contemporary manifestation of per- sistent geographically uneven development (Iammarino, S. et al. 2019; MacKinnon et al. 2022), are low or slow growth places where popular discontent and support for popu- list political forces, below average pay, em- ployment and productivity, lower levels of educational qualifications and skills, higher levels of poverty and economic disadvantage coalesce (Rodríguez-Pose, A. 2018; Bertus, Z. and Kovács, Z. 2022). As the FE is the part of the economy that is place-based, the theory fits well with the framework of progressive (if not radical) place-based policies targeting the reduction of territorial inequalities by promoting eco- nomic, social and institutional innovation, as it seeks to disrupt conventional growth-ori- ented local and regional development strat- egies that prioritise the inward attraction of firms and jobs. A report by the Heseltine Institute acknowledges that alongside the centrality of the tradable or commodity economy, the foundational economy and the social economy have an important role in the renaissance of lagging places (Boyle, M. et al. 2019). Given the increasing disconnect between growth and wages/living standards, the FE approach focuses on factors that di- rectly enhance quality of life and liveability for citizens, i.e., public services, social capital, social infrastructure and environmental as- sets. As Froud, J. et al. (2020) note, productiv- ity-enhancing regional or industrial policies are of little relevance in the context of low skills/low productivity foundational or mun- dane activities. In the case of some low pay activities, there is no automatic link between increased productivity and higher wages, nor is the policy goal of raising productivity in the FE sectors (such as health) necessari- ly meaningful. Rather than producing more competitive industries, the main purpose of the FE is to directly contribute to raising so- cial standards in a region via the provision of stable, high-quality, sustainable, resilient, and low-cost foundational services (Evenhuis, E. et al. 2021; Essletzbichler, J. 2022). The FE takes up an estimated 30 percent of average household consumption expenditure, making all households essentially foundational con- sumers (Bowman, A. et al. 2014). Joining the long-evolving debate on the inadequacy of GDP/GVA metrics to reflect welfare and cit- izen well-being (see Calafati, L. et al. 2021), FE theorists argue that the metrics of foun- dational liveability – defined as household residual income after housing, utilities and transportation costs – should be the primary concern of economic policy rather than pri- vate consumption-driven economic growth. In a foundational perspective, citizen welfare depends less on tradables purchased through individual private income and more on col- lectively provided essential daily services, like energy, medical care, mobility infrastruc- ture, education and social infrastructure, such as libraries and parks (Froud, J. et al. 2018). Essentially, what distinguishes the FE from the competitive sectors is its overwhelming reliance on locally derived demand and in- comes. Offering mostly locally anchored jobs, it acts as a major ‘stabilizer’ of local economies in periods of crisis, providing an important source of localized resilience (Martynovich, M. et al. 2023). By emphasizing the social use value of labour and the tacit skills of citizens, particularly those employed in low value, unpaid or underpaid sectors, the FE offers a novel approach to employment creation aimed at enhancing the quality of jobs, not simply their numerical increase (Bentham, J. et al. 2013; FE Collective, 2018; Forth, J. and Rincon Aznar, A. 2018). Given that future economic development is increasingly reliant on the qualitative contribution of production factors instead of extensive growth, we do not believe that the public sector has a crowd- ing-out effect on private sector economic per- formance (Birch, K. and Cumbers, A. 2007), rather, a well-functioning public sector or broadly defined FE is necessary for the whole 263Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. regional and local economy to work efficient- ly. Moreover, as empirical evidence suggests (Bosák, V. et al. 2023), in the long run, an un- derdeveloped FE can undermine the further expansion of the competitive economy. The FE as a moral enterprise (FE Collective, 2018) emphasizes universal entitlement to foundational goods and services that are essential to citizens’ well-being and partic- ipation in society as a means to reducing inequalities, partially through taxing wealth and conspicuous (non-essential) consump- tion. This clearly resonates with the social equity argument for regional policy where- by no individual should be disadvantaged with respect to job opportunities, access to public services and affordable housing by virtue of living in one region rather than another. Barbera, F. et al. (2018) draw an analogy between the local commons and the civic infrastructure of goods and services that serve everyday needs, stressing the need for their de-commodification. FE theorists inter- pret foundational provision and entitlement as the practical application of the theory on human needs and human capabilities. The FE approach has informed recent UK-wide proposals for universal basic services (UBS), arguing that everyone should have access to life’s essentials as a right not a privilege (see Coote, A. and Percy, A. 2020; Gough, I. 2020). The collective provision of UBS in areas such as childcare, adult social care, housing, trans- port and access to the Internet can be justified on equity, efficiency, solidarity as well as sus- tainability grounds (see Gough, I. 2020). UBS rely on interventionist states to ensure their citizens unconditional access to essential ser- vices and infrastructure; as argued by Gough, I. (2021), the state has the power to expand the foundational at the expense of the rent- ier economy by taxing non-labour incomes, e.g., wealth, land, corporations, pollution, unhealthy consumption, etc. The delivery of need satisfiers, defined as the particular goods, services, activities and relationships required to meet specific needs in a given social setting (Ibid. pp. 7) requires collective responsibility and ‘foundational renewal’. For instance, the building of ‘grounded cit- ies’ that emphasize the management of the mundane, sheltered activities of the FE for the benefit of all citizens, social innovations to meet basic needs over technical innova- tion geared at productivity growth, and the city’s co-development with its hinterland (Engelen, E. et al. 2017). Foundational live- ability, underpinned by UBS, is instrumen- tal in switching the economy from a fixation on economic growth to a concern for human well-being within planetary limits (Coote, A. 2020), in order to support the transition to a low-carbon energy-services, well-being, and equity-oriented economy (IPCC 2022). To this end, national governments across the globe have subscribed to post-growth well-being economy agendas, particular- ly in high income countries, where further economic growth no longer drives increased human well-being, health, happiness or life satisfaction (Wilkinson, R. and Pickett, K. 2022). Decentering GDP growth as a core economic and political target, well-being economies frame development as an incre- ment in multidimensional well-being and consider industrial investments of positive value for the economy insofar as they pro- duce desirable well-being outcomes, such as improvements in the quality of work or a better work-life balance. WE proponents, like FE theorists, have recommended focusing on collective well-being as the main goal of eco- nomic policy, and, therefore, the need to ex- pand socially productive sectors (e.g. health, education, care, conviviality) in tandem with downscaling ecologically and socially harm- ful economic activities (see Fioramonti, L. et al. 2022). In line with the literature (see Bentham, J. et al. 2013; FE Collective, 2018; Nygaard, B. and Hansen, T. 2020; Hansen, T. 2022), we believe that the FE has a higher relevance for peripheral regions and cities where the economic and institutional conditions for highly productive ventures are lacking as the demand for FE services is non-cyclical; be- sides, organisations in the FE are territorially distributed by nature, likely to be present in Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.264 every municipality. Due to its social and spa- tial inclusivity, the FE approach, promising to build more grounded local and regional econ- omies, has the potential to save left-behind places from the ‘circular and mutually rein- forcing spiral of deterioration’ (MacKinnon, D. et. al. 2022; Martynovich, M. et al. 2023). In addition, policies improving the productivity of ordinary firms in the everyday economy (such as retail, hospitality, social care, tour- ism), can achieve more regionally balanced growth by creating a broader base of com- petitive firms than an exclusive focus on fron- tier firms with a high spatial concentration, as the regional productivity gap in the case of certain FE activities is not that significant. Integrating the FE approach into economic policy making would also increase the po- tential of peripheral/semi-peripheral CEE regions ‘locked into’ low value segments of GVCs to overcome the low innovation, low skills, low productivity trap (Galgóczi, B. et al. 2015), helping them to avoid race-to-the- bottom situations. With its marked social wel- farist orientation emphasizing human capital, social investments, and the social consump- tion of essential goods and services over indi- vidual private consumption, the FE approach is particularly well-suited to the needs of peripheral regions with demographic chal- lenges and reduced economic opportunities, capable of alleviating poverty by providing decent wages and promoting a renewal of key provisioning sectors of the economy. Data and methods Our empirical work utilises a database of firm-level financial data collected from four Central and Eastern European countries, the Visegrád Group, based on our institution’s access to the Bureau van Dijk’s Orbis Europe database. The covered period spans from 2016 to 2021 and the database consists of a total of 218,575 active firms from Czechia, Hungary, Slovakia and Poland having either over 10 employees or over 1,000,000 USD op- erating revenue. The location information allows us to iden- tify the NUTS3 region and the municipality in which the firms are headquartered. This information allows us to study the firms’ performance according to a variety of territo- rial aggregations, from which we will focus on the national and the NUTS3 level. Also, information on the firms’ sector of operation according to the NACE Rev.2 classification (4-digit codes) enables us to analyse the data in a detailed sectoral disaggregation. The set of variables collected from the Orbis Europe database were chosen to be relevant to the cal- culation of the firm-level labour productivity following the widely recognised guidance of Gal, P.N. (2013). Nonetheless, data availability issues highly constrain the pool of firms avail- able for analysis. The results might not be fully representative for all of the regions. To over- come these shortcomings, we kept the level of regional disaggregation at the NUTS3 level and computed averages over the six years that were covered in our data set. For the sake of greater coverage, we omit dynamic analysis. In order to study the functioning of the foundational economy in each region, we need to identify those economic activities that belong to the different ‘zones’ of the economy. A detailed classification published by The Foundational Economy Collective (FE Collective, 2019) will help us to do this. The classification assigns to each economic activity identified by the NACE codes their type ac- cording to which part (zone) of the economy they belong (Table 2). The two categories with- in the foundational economy, as explained in previous sections, are the material activities and the providential activities, and similar in nature is the overlooked economy, which are supplemented by the tradable economy (called ‘other activities’). This way we are able to identify the divergent economic structures and the associated development patterns among the regions of the CEE area. The importance of the foundational econ- omy is mostly evaluated with the distribu- tion of economic performance between the different economic zones. For this reason, we compute some baseline distribution in- 265Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. dicators regarding the number of firms, the number of employees and the total operat- ing revenues in a regional aggregation. This is the information available in the database for the widest range of companies. We sup- plement this with the evaluation of average income and employment that inform about the relative strength of the types of eco- nomic activity in each region. The location information and the sector of operation is available for almost all firms, but the cover- age of employment and operating revenue data is only around 90 percent at an average (Table 3). For Czechia and Slovakia, the lower coverage is attributable to the reporting prac- tices of public sector firms and institutions, as data in many cases are available only at a class level or as an estimation. When com- puting firm-level productivity measures, we sort out those firms (institutions) that report ‘limited financials’ (Figure 1 and 2). A U-shaped relationship is observable be- tween the relative development of the regions and the share of the manufacturing sectors within their total economy (Figure 3). In fact, the values exceeding 20 percent are regarded as high in a Europe-wide comparison. On the basis of this, and also considering the popu- lation size, we have grouped the 115 regions into five categories according to their level of development based on their per capita GDP level (in PPS) relative to the EU average in 2019 (see Figure 1). The capital regions are a distinct category, reaching 152 percent (Budapest), 163 percent (Bratislava), 206 per- cent (Prague) and 216 percent (Warsaw) of the average per capita GDP in the EU and having a low relative share of manufacturing within their economy. The second development cat- egory consists of 9 metropolitan regions with large non-capital cities, of which one is in Czechia (Jihomoravský kraj with Brno) and 8 in Poland (Miasto Kraków, Katowicki, Miasto Poznan, Miasto Szczecin, Miasto Wroclaw, Trojmiejski, Miasto Lódz and Warszawski zachodni), having above-EU average develop- ment and relatively low manufacturing sector. The third category represents the relatively developed non-capital regions (altogether 22), hereby referred to as ‘intermediate’ re- gions, with per capita GDP levels exceeding 70 percent of the EU average. They are mostly manufacturing regions with medium-sized Table 3. The coverage of the firm-level database Country Number of Total operating revenue, million USD Coverage of NUTS3 regions firms employees employment data*, % revenue data*, % Czechia Hungary Slovakia Poland 14 20 8 73 60,083 57,412 29,518 71,562 3,324,593 2,785,495 1,133,455 6,056,176 603,794 470,866 247,406 1,038,711 80.6 95.6 80.3 95.3 92.0 99.7 80.0 92.7 Total 115 218,575 13,299,719 2,360,776 89.3 92.6 *The column reports the proportion of companies for which data are available for at least one year. Source: Authors’ own elaboration based on Orbis data. Table 2. NACE Rev. 2 industry classification with respect to economic zones Zone Number of industries Percentage of industry codes, % Material Providential Overlooked Tradable (other) 182 44 183 377 23.2 5.6 23.3 48.0 All industries 786 100.0 Note: A detailed list of industry classification is available in Martynovich, M. et al. (2023) online supplement (pp. 10–21), and The Foundational Economy Collective (2019). Source: Authors’ own elaboration based on Martynovich, M. et al. (2023) online supplement. Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.266 centres. Apart from Plocki and Legnicko-Glogowski regions in Poland, none of these exceed 90 percent of the EU per capita GDP, nevertheless, they are de- veloped compared to other parts of their respective countries. The less devel- oped regions were divided into two categories: ‘pe- ripheral’ regions reaching between 50 and 70 percent and having remarkable manufacturing sector (alto- gether 54 regions); and the ‘most backward’ regions which are below 50 percent of the EU average per cap- ita GDP and the weight of their manufacturing sector is moderate (altogether 26 regions, none of which are in Czechia). To evaluate firm perfor- mance, we calculate em- ployment, revenue and pro- ductivity indicators. Gal, P.N. (2013) considers total revenue-based labour pro- ductivity as the most widely available measure, whose major weakness is that it does not control for intermediate input usage. Value added based labour productivity takes care of this problem, as value added is the dif- ference between output (sales, revenue) and inter- mediate inputs (including resold goods). However, labour productivity does not control for differences in capital intensity across firms, therefore, to control for capital intensity, total factor productivity (TFP) should be calculated. Fig. 1. Relative economic development of the NUTS3 regions in the Visegrád countries (per capita GDP in PPS, as a percentage of the EU-27 average), 2019. Source: Authors’ own elaboration based on Orbis data. Fig. 2. The normalised Hirschmann-Herfindahl index of GDP concentra- tion in the Visegrád countries, 2010–2021. Source: Authors’ own elabora- tion based on Eurostat data (nama_10r_3gdp). 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Czechia Hungary Slovakia Poland 267Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. In this research we compute four kinds of measures for firm-level productivity. First, turnover-based labour productivity, which is the operating revenue divided by the number of employees. Likewise, a more accurate meas- ure is value-added-based labour productiv- ity, which is the value added divided by the number of employees. Nevertheless, the cover- age of the value added data varies among the countries, being the lowest in Hungary (18%) and the highest in Poland (91%). Thirdly, value added is estimated by simply using its definition based on factor incomes as de- scribed by Gal, P.N. (2013), that is, the sum of the cost of employees and EBITDA. Fourthly, value added is calculated as the difference be- tween total turnover and intermediate inputs, where the latter is approximated by the mate- rial costs. These indicators all measure labour productivity. Partly due to the different focus of our research and to data availability issues, TFP calculations will not be included at this stage of the research. Results In this chapter we first present a bunch of descriptive statistics about the weight and performance of the various types of econom- ic activities according to the foundational approach in the regions of the selected CEE countries. Then, we analyse the efficiency of production according to multiple labour pro- ductivity measures across the regions. Exploring the performance of different economic activity types in the CEE regions The basic distribution measures mostly confirm our expectations about the weight of foundational activities (identified by the firms’ NACE codes) in the different types of regions based on their relative development (Figure 4, and Figure A1 and A2 in the Appen- dix). Regarding the number of firms, tradable activities are most concentrated in the capitals Fig. 3. The relationship between the share of manufacturing in GVA and relative development in the NUTS3 regions of the Visegrád countries (2016–2021) by region types. Source: Authors’ own elaboration based on Eurostat [nama_10r_3gdp] and [nama_10r_3gva]. Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.268 and metropolitan regions, but in terms of employment and, espe- cially revenues, they are more represented in the intermedi- ate regions in all four countries. The weight of material activi- ties is relatively small in terms of the number of firms, but they represent the second largest cat- egory in terms of employment and revenues, especially in the capital regions. This is due to the centralised nature of material services provision and to the fact that a large part of the employ- ment and revenues are recorded in the capital-based headquar- ters of the firms in the material sectors. In less developed re- gions, particularly in the most backward ones, providential and overlooked activities gain more importance, notably in terms of employment, and to a less extent in terms of revenues. While bear- ing in mind that the significant differences in the share of provi- dential activities may arise from the different reporting practices of public institutions in the four countries, within-country, inter- regional differentials are still considered informative. Interregional differences, based on the cross-sectional relative standard deviation (Table 4) are, generally, the highest in Poland, followed by Hungary and are the lowest in Czechia. Out of the four activity types, the spatial varia- tion is relatively high in the prov- idential and overlooked activities and it is the lowest in the trad- Fig. 4. The distribution of employment between economic activities by region type, averages between 2016 and 2021. Source: Authors’ own elaboration based on Orbis data. 269Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. able activities. Concerning the three types of indica- tors, the highest interre- gional variation is observed in terms of the revenues and the number of employees. The geographical differ- ences regarding the share of employment in founda- tional activities within total employment significantly overlap with the differences of overall economic devel- opment measured by per capita GDP (see Figure 1), as confirmed by Figure 5 below. To gain deeper insights, we plot this relationship (Figure 6) and evaluate it with an OLS-regression between the share of em- ployees in the foundational activities and the relative development of regions. Analogous regressions were also computed for revenues and the number of firms in the FE activities as a share of those in the total economy. Due to their high level of development and the bal- Fig. 5. The share of employees in foundational activities by NUTS3 regions in the Visegrád countries, averages between 2016 and 2021, in percent. Source: Authors’ own elaboration based on Orbis data. Table 4. The relative interregional standard deviation of the share of FE and non-FE activities within the total economy Country Material Providential Overlooked Tradable Relative s.d. – the share of employees, % Czechia Hungary Slovakia Poland 25.8 23.6 24.2 35.7 13.3 27.0 28.8 49.9 17.4 21.4 22.1 44.5 13.2 24.8 18.0 31.5 Relative s.d. – the share of firms, % Czechia Hungary Slovakia Poland 14.3 20.7 21.4 27.9 22.6 27.4 40.8 28.4 9.9 10.1 13.4 17.2 18.3 21.6 13.0 22.0 Relative s.d. – the share of revenues, % Czechia Hungary Slovakia Poland 30.1 35.4 25.7 41.2 28.6 39.8 29.4 58.0 45.4 50.4 46.8 78.8 16.4 29.2 14.0 36.1 Source: Author’s own elaboration based on Orbis data. Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.270 Fi g. 6 . T he r el at io ns hi p be tw ee n th e sh ar e of e m pl oy ee s in F E (a ve ra ge s be tw ee n 20 16 a nd 2 02 1) a nd th e re la tiv e pe r ca pi ta G D P in 2 01 9 (P PS , E U -2 7 = 10 0) . So ur ce : A ut ho rs ’ o w n el ab or at io n ba se d on O rb is d at a. 271Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. anced distribution of tradable and foundational activities within their economies, the four capi- tal cities and a couple of Polish metropolitan regions emerge as outliers within the regions. This holds for the weight of FE in terms of em- ployment and revenues, but not for the number of firms as the share of firms in FE activities relative to the total economy is the lowest in the capitals and metropolitan regions among the regions in each country, i.e., they do not depart from the general tendency described by the re- gression in this respect (see Figure A1 in the Appendix). This result is in line with those of Martynovich, M. et al. (2023), who highlighted that the weight of FE, by its very nature, is in a strong, positive relationship with the popula- tion density. It is reasonable to assume that this additional factor causes the specialties of the capital and metropolitan regions. The overall correlation between the level of development and the weight of the foundational sectors is better captured if we exclude the capital cit- ies from our computations. The relationship between the share of employees in FE and the relative per capita GDP is significantly negative in the regions outside the capital cities, as con- firmed by the results of the regression analysis (see Table 5). The relationship between relative regional development and the share of reve- nues in the FE is weaker, but significantly nega- tive nonetheless. At the same time, the regres- sion shows the strongest negative association if we relate the regions’ relative development to the number of firms in FE within their number in the total economy. There are some notable differences within the Visegrád Group regarding the regional-level distribution of the share of foundational activi- ties in terms of employment. Expectedly, the extent of the variation between the individual regional values follows the number of regions within each country. In Czechia, the weight of foundational activities within total employ- ment varies between 46 percent (Liberecký kraj) and 67 percent (Karlovarský kraj). In Hungary, the lowest share of FE employment, 45 percent, was measured in Komárom-Esztergom county, and the highest, 76 percent in Tolna county. In Slovakia, the share of FE employment var- ied between 39 percent (Trenciansky kraj) and 66 percent (Banskobystrický kraj). The high- est dispersion in this respect was observed in Poland, where the share of FE employment was the lowest in Plocki region (34%), and the high- est in Chelmsko-zamojski region (86%). Measures of the average size of firms in terms of employment and revenues in the different sectors and regions are also informative and help us to make a distinction between the gen- eral development level and the relative impor- tance of the FE sectors. Figure 7 indicates the average number of employees and the average turnover by NUTS3 regions relative to the total economy in a combined way. When the points Table 5. The relationship between the weight of FE and relative development in the NUTS3 regions of the Visegrad countries (2016–2021) Dependent variable Share of employees Share of revenues Share of firms in the FE within total employees revenues firms Constant 79.9650* (3.1774) 72.6497* (4.6434) 78.8797* (1.9332) Per capita GDP, EU-27 = 100 -0.3455* (0.0481) -0.3429* (0.0702) -0.2895* (0.0292) Adj. R-squared 0.3155 0.1720 0.4687 S.E. of regression 9.9862 14.5938 6.0759 F-statistic 51.6971 23.8433 98.0219 Prob.(F) 0.0000 0.0000 0.0000 Obs. 111 111 111 Note: Standard errors are in parentheses. * Indicates significance at the 99 percent level. Source: Authors’ own elaboration based on Orbis and Eurostat data. Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.272 representing the NUTS3 regions are closer to the vertical axis, it suggests that the relative average turnover of firms is generally higher compared to the total economy, but the average employment of firms is relatively lower. This is the case in the material activities and, especial- Fig. 7. Average number of employees and average turnover by region types and by activity types in the NUTS3 regions of the Visegrád countries (total economy = 1). Source: Authors’ own elaboration based on Orbis data. 273Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. ly, in the tradable activities. In the overlooked activities, the firms’ relative average employ- ment is roughly proportional to their relative average turnover. However, in the providential activities, the firms employ a relatively large number of people at an average, but their av- erage turnover is unproportionately low. The highest average employment is observed in the Fig. 7. Continued. Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.274 material and providential activities, especially in the capital regions (partly as a result of the special reporting practices). Average employ- ment is generally the lowest in the overlooked activities. The tradable activities have a higher number of employees in the non-capital re- gions, especially in the intermediate regions, but the largest firms in terms of employees are found in the providential activities. Measures of firm-level productivity in the CEE regions In what follows, we evaluate firm perfor- mance on the basis of labour productivity as described in the “Data and methods” sec- tion. Our perception is that the four types of labour productivity indicators show roughly similar tendencies, but they show some in- consistencies, therefore, we evaluate their evolution together (Figure 8, and Figure A3 in the Appendix). The turnover-based pro- ductivity will be compared to the average of the other three, value-added-based produc- tivity measures. Based on the available measures of labour productivity, our results confirm the general expectations: in all types of regions tradable activities are more productive than other ac- tivities in many cases, but not always. Among FE activities, material activities have a compa- rably high or even higher labour productivity, especially in the capitals and Polish metro- politan regions. According to all measures of labour productivity, overlooked activities are less productive than material and tradable activities in each of the four Visegrád coun- tries and each type of region, while the lowest efficiency was measured in the providential activities. A downward slope is observed for labour productivity performance according to the level of regional development (repre- sented by the five region categories) across each activity type, which is most evident in Poland, and somewhat less visible in Slovakia. There is also a duality in terms of capital ver- sus non-capital regions, especially in Slovakia and to a lesser extent in Hungary. In the case of Czechia, the productivity gap between the capital and non-capital regions is not that large, and the differences between non-capi- tal regions, including the metropolitan region, are not wide either. Productivity differentials among the five types of regions are smaller in the overlooked and the providential activities. Among the non-capital regions, the produc- tivity advantage of intermediate regions over that of other, less developed (peripheral and most backward) regions is not always observ- able in the case of Czechia or Hungary. Figure 9 – and Figure A4 in the Appendix – depicts labour productivity values for each NUTS3 regions by region types and compares them across the four types of activities in the Visegrád countries. The largest capital versus rest of the regions disparities are observable in the material industries (due to their highly cen- tralised nature) and in the tradable activities. These are the largest in Slovakia and Hungary, but the distribution is much more balanced in Poland due to the high performance of the met- ropolitan regions. The most even distribution is observed for the overlooked activities and the providential activities everywhere, with the exception of Hungary. In the providential activ- ities capital regions typically have a medium, or at least not outstanding performance. Discussion Comprehensive empirical exploration of the FE is very scarce in the literature so far, therefore we can compare our results with only a few examples. The basic distribution measures that inform about the weight of FE are largely in line with those found in the literature. The most notable of them is Mar- tynovich, M. et al. (2023) who investigated the role of FE in times of crisis. According to them, the blow of the crisis was milder in regions where the FE was better integrated with other economic activities. We think that this is similar to the case of CEE, since FE in itself is not stable enough to provide long- term stability because of its regrettably un- derfinanced nature. The authors propose that 275Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. Fi g. 8 . T ur no ve r- ba se d la bo ur p ro du ct iv ity b y ec on om ic a ct iv ity ty pe s a nd N U TS ty pe s, av er ag es b et w ee n 20 16 a nd 2 02 1 (n at io na l a ve ra ge in th e to ta l e co no m y = 1. 00 ). So ur ce : A ut ho rs ’ o w n el ab or at io n ba se d on O rb is a nd E ur os ta t d at a. Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.276 Fig. 9. Average turnover-based labour productivity of the NUTS3 regions by countries, region types and activity types (1,000 USD). Source: Authors’ own elaboration based on Orbis and Eurostat data. 277Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. Fig. 9. Continued. Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.278 the different roles played by foundational and traded activities during crisis and recov- ery necessitate a more balanced approach, and more attention should be paid to the integration between these parts of the econ- omy. Namely, to give particular attention to the interconnections between foundational and traded activities in regional policymak- ing and not to prioritize one over the other. Our position is in accordance with the re- sults of Nygaard, B. and Hansen, T. (2020) who state that foundational industries are often presented as levers for increased pro- ductivity, economic growth and job crea- tion in other industries, thus, arguments for prioritizing them are not simply based on their positive contribution to citizens’ wel- fare. The authors also found that local ini- tiatives related to material services are most prominent, whereas providential services are less frequently prioritized in the municipal development strategies. Similarly, in CEE, material activities are often treated as stra- tegic industries. The authors state that in Danish municipalities providential services are not considered part of the core of wealth production despite their central contribution to citizens’ well-being. In general, founda- tional activities are regarded as unproduc- tive consumption that municipalities can af- ford when exporting industries are thriving. According to Nygaard, B. and Hansen, T. (2020), it is capital and other metropolitan areas that emphasize initiatives to improve or invest in foundational industries, whereas rural and provincial municipalities are more likely to stress export-oriented industries in their planning strategies. We assume that it reflects the fact that foundational activities are often treated as residual, which is even more the case in CEE. Bosák, V. et al. (2023) in a Czech munic- ipal-level comparative analysis underline that the successful functioning of the trad- able economy is conditioned by the FE, in the long-run, as it ensures social reproduction. Actually, an underdeveloped FE severely hinders local development overall, includ- ing further expansion of the tradable sectors. In our research we also find that beyond tradable activities, only the well-financed material activities are able to bring prosper- ity to less developed areas, but there is no significant spill-over effect, since revenues in the overlooked activities largely depend on the local purchasing power, and revenues in the providential activities are dependent on public finances. Conclusions In this article we provided an exploratory analysis of the distribution and performance of foundational activities within the regions of four CEE countries. Our findings show that foundational activities account for a significant proportion of employment, but they are considerably less important in terms of revenues. Also, the results confirmed our expectations that foundational activities are more represented in less developed regions, while tradable activities are more wide- spread in the so-called intermediate regions that form the most developed parts of their respective countries outside the capital cities. The relative economic development of capital cities outperforms their wider environment, nonetheless, the weight of the foundation- al and non-foundational activities is quite balanced in each of the four capitals of the Visegrád countries, at least in terms of em- ployment and revenues. Among the differ- ent types of foundational activities, material activities have a similarly high labour pro- ductivity as compared to the tradable sector. Consequently, if we presume that tradable activities are less likely to appear robustly in less developed regions, the strengthening of the presence and performance of mate- rial activities might have positive impacts on their prosperity. The countries of the CEE region share many common features in terms of their economic development and geographies, but there also important differ- ences between them. Slovakia and Czechia are characterized with a higher degree of ‘capital versus rest of the country’ duality 279Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. compared to Hungary, even though the lat- ter shows wider spatial inequalities in GDP production, while economic development in Poland is the most deconcentrated based on both regional and firm-level data. The most striking difference in the CEE countries with respect to their Western European counterparts is that the relative weight of manufacturing is significantly higher, but it reflects a weaker efficiency, i.e., the low road of development. Hence, a high reliance on the manufacturing sector cannot guarantee prosperity. We suspect that in the CEE context, foun- dational activities might prosper in those regions where a relatively developed trad- able sector is present, which is confirmed by the experience of the capital cities and metropolitan regions. Given that in some cases, especially in Hungary and Slovakia, the government’s economic policy focuses more on industrial development and treats a large share of foundational activities as re- sidual (excepting, e.g., the energy and finan- cial sectors), the foundational economy could develop only in tandem with the tradable economy. Our impression is that good ex- amples in this respect are found (apart from the highly developed capital cities) in the so- called ‘intermediate’ regions where a high level of industrialization and economic buoy- ancy can boost the growth of foundational activities and the services sector in general. 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Hungarian Geographical Bulletin 72 (2023) (3) 257–285.284 Fig. A4. Average value-added-based labour productivity of the NUTS3 regions by countries, region types and activity types (1,000 USD). Source: Authors’ own elaboration based on Orbis and Eurostat data. 285Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285. Fig. A4. Continued. Egyed, I. and Zsibók, Zs. Hungarian Geographical Bulletin 72 (2023) (3) 257–285.286