Abstract
The first decade of economic transformation in Central and Eastern Europe has provided some general and relevant lessons, including common principles accompanied by different practices and even more differentiated performance, harmonization of macroeconomic and microeconomic policies, the impact of noneconomic factors on the quality of the transformation process, and the two main stages of the transformation process. The Hungarian economy seems to have reached the second stage of transformation with sustainable and high growth and controlled budgetary and current account (im)balances. The positive record is due to a number of special factors, including the successful stabilization package in the mid-nineties and the cooperative behavior of society.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Twenty of the leading 25 transnational companies are present in Hungary. Foreign-owned firms account for almost three fourths of total exports and play an important role in GDP growth, investment activities, and employment.
According to the latest World Investment Report (October 2000), the Hungarian economy, together with those of Ireland and of Singapore, figures among the most“transnationalized” economies. The“transnationalization index” is composed of the role of foreign direct investment in exports, investments, and employment and growth creation. Also, the most recent report by a U.S.-based advisory company, AT Kearney, lists Hungary among the most “globalized” countries of the world. Based on a composite index containing the share of foreign trade in GDP, the convergence between domestic and international prices, the volume of international capital flows, the number of foreign tourists as a percentage of the domestic population, the length of international telephone calls, and the expansion of Internet services, Hungary occupies seventeenth position in global ranking.
For details, see András Inotai, “Structural Transformation of Hungary and other Central and Eastern European Countries in the Mirror of Exports to Germany, 1989–1998,” Institute for World Economics and National Committee on Technological Development, Budapest, 1999. Most recent figures are calculated on the basis of Statistisches Bundesamt, Fachserie 7, Aussenhandel, Reihe 3, Aussenhandel nach Ländern und Warengruppen.
These programs are put together by the so-called Széchenyi Plan. One can hardly disagree with the importance of the priority areas formulated in this plan (housing, development of information technologies, support to small and medium-sized companies, tourism, research, and development of physical infrastructure, mainly highways). Furthermore, longer-term programs are necessary to sustain the momentum of gradual socioeconomic modernization. But as they are not part of a medium-term economic strategy, some may remain “footloose” or enable “special contracts” with “preferred” companies.
Unfortunately, some preliminary figures for 2000 seem to deviate from the main trend following the austerity package of 1995. While exports continued to grow dynamically, investment remained below the GDP growth rate. There is hope, however, that with the launching of the Széchenyi Plan investment activities will pick up in 2001, with obvious potential risks for inflation, trade, and current account balances.
In fact, after several years of using Hungary as an excellent location to manufacture (and assemble) products with extremely high inputs of imports, and, consequently, with relatively low value added, the supply-demand situation seems to be changing. On the one hand, transnational companies have learnt that an increasing share of their production in Hungary can be based on competitive inputs produced in Hungary, either by Hungarian-owned firms or by foreign firms in the country. On the other, a growing number of small and medium-sized firms have enhanced their competitive edge and started to appear in the market of potential subcontractors to leading international companies. In this way, a new model of sustainable economic development can be shaped in the future. The so-called export-oriented import substitution pattern is based on higher local content of production. It has several advantages, including the stronger interaction between multinationals and local firms, strong spillover effects, and a healthier trade balance with more room for additional imports.
After several years, 2000 was the first in which nondebt-creating capital flows did not fully cover the current account deficit (the coverage ratio fell to less than 40 percent). While FDI remained at the level of the previous year (about US$1.5 billion), the balance on portfolio investments worsened by US$1.4 billion between January and November of 1999 and 2000, respectively. The underlying factors include turbulence in international markets, substantial loss of interest in the Budapest Stock Exchange, and, most probably, higher profit transfers.
The accession-related decision of the Nice summit in December 2000 and the adoption of the Commission’s enlargement strategy paper with a clear roadmap may provide new dynamism to the negotiations and shorten the time needed for full membership in the EU.
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2002 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Inotai, A. (2002). Completing Transition: The Case of Hungary. In: Tumpel-Gugerell, G., Wolfe, L., Mooslechner, P. (eds) Completing Transition: The Main Challenges. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-04866-5_30
Download citation
DOI: https://doi.org/10.1007/978-3-662-04866-5_30
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-07676-3
Online ISBN: 978-3-662-04866-5
eBook Packages: Springer Book Archive