open access

https://hdl.handle.net/2115/39052

EU Accession and FDI Incentives in Hungary

日本語

2004

北海道大学スラブ研究センター

Slavic Studies

51

209-239

Over 80 percent of voters supported the idea of Hungary's affiliation into the European Union in the national referendum held on the 12th of April 2003. This was the moment when the central government cleared the last political hurdle for EU accession in May 2005. Now, this historical step towards integrating Hungary into European society has come into the final countdown stage, and it is without doubt that the reform efforts of the Hungarian people will be paid off with great success. The huge inflow of foreign capital into Hungary played a crucial role in creating a "functional market economy" in this country, which was one of the essential conditions for successful negotiations with the European Committee for Hungary's full membership. It means that foreign direct investment (FDI) sustained effective demand during the initial phase of systemic transformation, and made remarkable contributions to the vitalization of the national economy by enforcing domestic competitions, restructuring of the export structure, modernizating industrial organization, and rehabilitating corporate management of privatized firms. Concerning the positive impacts of FDI on the acceleration of the transition process to a market economy and the restructuring of enterprise in Hungary, many preceding studies present persuasive evidence. In this paper, we also demonstrate that large-scale embarkation of multinational enterprises upon Hungarian industries and the service sector support the improvement of the effectiveness of production activities and corporate management by conducting regression analyses based on the Figyelő top 200 largest Hungarian firm data in 1999-2001. Our estimation of the Cobb-Douglas production function strongly suggests that total factor productivity of multinationals was much better than other Hungarian firms including the former state-owned enterprises privatized by foreign investors during this period. In this regard, investment policies including the ten-year full remission of corporate tax and the Custom Free Zone introduced in 2002 were very effective in promoting FDI into Hungary especially from developing countries together with favorable geopolitical conditions. But, EU accession necessitated the Medgyessy administration to take drastic measures to alter these preferential incentives in accordance with EU common rules, namely "acquis communautaire." As a result, the "Smart Hungary" investment strategy was launched in January of 2003. This new investment incentive programme was carefully designed so as not to discourage foreign investors in Hungarian industries within the regulations. However, it is obvious that the new incentives are less attractive for foreign companies than before. Nevertheless, EU enlargement may have enough impact to offset disincentive effects of policy changes. Therefore, the prospects for the Hungarian FDI are not somber in the short-term perspective. Many researchers and policy makers, however, stress the importance of medium and long-term policies including the development of human capital and the encouragement of R&D activities in order to attract knowledge and technology-based industries to Hungary for sustainable economic development.

紀要論文

Version of Record

0562-6579

AN0012574X