Sebastian Meyer

Foreign Direct Investment in Hungary between 1990 and 1995 Sebastian Meyer

How was it feasible that between 1990 and 1995 Hungary was the most successful and the first East and Central European transition nation in decoying Foreign Direct Investment (FDI) of Western firms even though its overall macroeconomic performance suffered amongst others from the transition recession which was as dramatic as the output decline of the Great Depression between 1930 and 1934? Moreover its economic growth was characterized as less competitive compared to a Western nation resulting from a low production and aggregated demand as well as grave foreign and domestic imbalances? It faced a high level of inherited foreign debt due to structural deficits of the former Soviet centrally planned regime. They had a low amount of capital and technology as important factors of production. For reducing this permanent debt, the Hungarian government consequently considered internal and external financing. Internal financing did not work efficiently because the Hungarian government as debtors could not receive enough remittances from the Hungarian public in the long term. The situation was fragile. The gross domestic product (GDP) including their real disposable income as well as confidence in their own economy and government was not high enough in the long run. To go a step further, the Hungarian government thus needed to persuade external debtors because it has more prospects to find potential investors. This book looks for explanations for this macroeconomic contradiction.