Abstract
Abstract: Following the collapse of centrally planned regimes, Hungary emerged as the prime Central European location for foreign investors seeking direct investment opportunities. Up until 1995 Hungary was first in attracting FDI-inflows both in absolute and relative terms within the region. With a significant deterioration in the current account as Hungary entered a reform process and began to rely heavily on foreign funds to fill the gap between investments and domestic savings, FDI-inflows were first seen as a favourable (i.e. non-debt generating) form of financing the C/A-deficit. Other aspects of FDI on the Hungarian economy were not adequately investigated, or were even ignored. This paper aims to give a broader view of FDI, trying to explore all the possible benefits and disadvantages that are associated with these capital flows. A large part of the paper is thus devoted to theoretical issues. Another part deals with the development of FDI-inflows to Hungary, giving deeper insight into the data. Based on these an attempt is made to analyse the factors that determine the volume of FDI-inflows into Hungary. Due to problems of data shortage, the exact quantitative analysis failed, but the importance of some key factors were reinforced: most notably national income of both the donor economy and Hungary, relative wage to capital cost ratios between the donor country and Hungary, the stock of human capital and the geographical distance of the donor country from Hungary. Finally, the effects of FDI on the Hungarian economy were investigated, but since data limitations, many references are given to experiences of other countries that were once net recipients of FDI. Taking into account these experiences tha paper concludes that economic policy should be selective in motivating FDI-inflows: incentives should be given to only highly export-oriented companies that are more prone to integrate into the domestic economy by seeking contracts with domestic suppliers.
Available only in Hungarian.
MF1999_11