Market reform and fiscal laxity in Communist and post-Communist Hungary: A path-dependent approach

Purpose – The purpose of this paper is to present a conceptual framework in order to analyse and understand the twin developments of successful microeconomic reform on the one hand and failed macroeconomic stabilisation attempts on the other hand in Hungary. The case study also attempts to explore the reasons why Hungarian policymakers were willing to initiate reforms in the micro sphere, but were reluctant to initiate major changes in public finances both before and after the regime change of 1989/1990. Design/methodology/approach – The paper applies a path-dependent approach by carefully analysing Hungary's Communist and post-Communist economic development. The study restricts itself to a positive analysis but normative statements can also be drawn accordingly. Findings – The study demonstrates that the recent deteriorating economic performance of Hungary is not a recent phenomenon. By providing a path-dependent explanation, it argues that both Communist and post-Communist governments used the general budget as a buffer to compensate the losers of economic reforms, especially microeconomic restructuring. The gradualist success of the country – which dates back to at least 1968 – in the field of liberalisation, marketisation and privatisation was accompanied by a constant overspending in the general government. Practical implications – Hungary has been one of the worst-hit countries of the 2008/2009 financial crisis, not just in Central and Eastern Europe but in the whole world. The capacity and opportunity for strengthening international investors' confidence is, however, not without doubts. The current deterioration is deeply rooted in failed past macroeconomic management. The dissolution of fiscal laxity and state paternalism in a broader context requires, therefore, an all-encompassing reform of the general government, which may trigger serious challenges to the political regime as well. Originality/value – The study aims to show that a relatively high ratio of redistribution, a high and persistent public deficit and an accelerated indebtedness are not recent phenomena in Hungary. In fact, these trends characterised the country well before the transformation of 1989/1990, and have continued in the post-socialist years, too. To explain such a phenomenon, the study argues that in the last couple of decades the hardening of the budget constraint of firms have come at the cost of maintaining the soft budget constraint of the state.

Exchange Rate Policy and Economic Growth after the Financial Crisis in Central and Eastern Europe

In a paper on the effects of the global financial crisis in Central and Eastern Europe (CEE), the author reacts to a paper of Åslund (2011) published in the same issue of Eurasian Geography and Economics on the influence of exchange rate policies on the region’s recovery. The author argues that post-crisis corrections in current account deficits in CEE countries do not in themselves signal a return to steady economic growth. Disagreeing with Åslund over the role of loose monetary policy in fostering the region’s economic problems, he outlines a number of competitiveness problems that remain to be addressed in the 10 new EU member states of CEE, along with improvements in framework conditions supporting future macroeconomic growth.

Spillovers from Foreign Direct Investment in Central and Eastern Europe. An index for measuring a country’s potential to benefit from technology spillovers

In the paper, we construct a composite indicator to estimate the potential of four Central and Eastern European countries (the Czech Republic, Hungary, Poland and Slovakia) to benefit from productivity spillovers from foreign direct investment (FDI) in the manufacturing sector. Such transfers of technology are one of the main benefits of FDI for the host country, and should also be one of the main determinants of FDI incentives offered to investing multinationals by governments, but they are difficult to assess ex ante. For our composite index, we use six components to proxy the main channels and determinants of these spillovers. We have tried several weighting and aggregation methods, and we consider our results robust. According to the analysis of our results, between 2003 and 2007 all four countries were able to increase their potential to benefit from such spillovers, although there are large differences between them. The Czech Republic clearly has the most potential to benefit from productivity spillovers, while Poland has the least. The relative positions of Hungary and Slovakia depend to some extent on the exact weighting and aggregation method of the individual components of the index, but the differences are not large. These conclusions have important implication both the investment strategies of multinationals and government FDI policies.

Social change in Central and Eastern Europe: General trends and national patterns

The paper addresses five issue areas. First it describes the plurality of trajectories in central and eastern European transformations, offering a broad typology. Then it addresses the drift between acceptance of democracy and the market, owing to growing inequalities. Third, problems of poverty and exclusion are addressed. Fourth, it is addressed if any known model of redistribution emerged in the post-transition economies. Fifth, consequences of the populist turn in European policies are being analyzed. Influences of the EU practices will be dealt with and some preliminary conclusions drawn. These suggest a strong intertwining between social and economic performance that limit theoretically conceivable – neoliberal, social democratic, postmodern or conservative - policy choices.

A jelzálogpiaci válság és a Közép-Kelet-Európában aktív nagybankok részvényárfolyama (The impact of the subprime crisis on the banks being active in Central and Eastern Europe)

Tanulmányunkban azt vizsgáljuk, hogy a jelzálogpiaci válsághoz köthető hírek milyen hatással vannak a Közép-Kelet-Európában aktív nagybankokra. A vizsgálathoz tíz Közép-Kelet-Európában aktív, tőzsdei nagybankot választottunk ki, amelyek közül hat nyugat-európai, míg négy közép-kelet-európai székhelyű bank volt. A tíz pénzintézettel kapcsolatosan 128 hírt gyűjtöttünk össze a 2007. június 1. és 2009. december 31. közötti időszakból. A híreket öt kategóriába csoportosítottuk, és az egyes kategóriáknak a részvényárfolyamokra gyakorolt, rövid távú hatását külön vizsgáltuk. Számításaink alapján a jelzálogpiaci válság során a befektetők pozitívan fogadták az állami feltőkésítéssel kapcsolatos bejelentéseket és a kielégítő védelmet nyújtó, átfogó kormányzati bankmentő csomagokat. A veszteségekkel, a leminősítéssel és az ECB intézkedéseivel kapcsolatos hírek esetén rövid távon nem tudtunk szignifikáns hatást kimutatni. A kutatás során a hírek számosságában igen, de a hírek által kiváltott hatás nagyságrendjében nem észleltünk jelentős különbséget a nyugat-európai és a középkelet- európai bankok között. ______ The research measures the impact of the subprime crisis on the shareholders of the banks being active in Central and Eastern Europe. The analysis focuses on the ten largest banks of the region measured by the asset size. The authors address the question whether the crisis affected more signifi cantly the large banks headquartered in Western Europe or the banks domiciled in Central and Eastern Europe. With the aim of capturing the short-term impact of various news on the shareholders of the banks, the popular event-study methodology with a one-day event window is employed. Within the period of 1 June 2007 and 31 December 2009, altogether 128 news were collected and grouped into fi ve categories (downgrades, loss, capital strengthening, governmental rescue packages, interventions of the ECB). Among others, the authors found empirical evidence that the shareholders appreciated the interventions of the governments: their capital injections resulted in signifi cant positive abnormal returns. Governmental rescue packages also resulted in signifi cant abnormal returns in the share price, however, the sign of the returns was unambiguous. No empirical evidence was found that in the short run the news in connection with loss announcements, downgrades and ECB interventions resulted in signifi cant abnormal returns. We concluded that although Western European banks and banks domiciled in Central and Eastern Europe differed in the number of news announced, the crisis affected the banks in both regions in a similar manner.

Supply chain position and servitization efforts of companies in Eastern and Western Europe

Our paper investigates the supply chain position of manufacturing companies in Europe, and the relation of this position to the extent and kind of services these companies provide. Our research builds on analyzing differences between Western and Eastern European companies. For the empirical research the database from the fifth round of the International Manufacturing Strategy Survey is used which covers 445 manufacturing companies from 13 European countries. Based on the connection between supply chain position and the extent and type of services offered dominant business models are identified both in Eastern and Western Europe.

“An Ebbing Tide Lowers all Boats” How the great recession of 2008 has affected men and women in Central and Eastern Europe

In this paper we explore the impact of the economic recession of 2008 on gender inequality in the labor force in Central and Eastern European countries. We argue that job and occupational segregation protected women’s employment more than men's in the CEE region as well, but unlike in more developed capitalist economies, women’s level of labor force participation declined and their rates of poverty increased during the crisis years. We also explore gender differences in opinions on the impact of the recession on people’s job satisfaction. For our analysis we use published data from EUROSTAT and our own calculations from EU SILC and ESS 2010.

Measuring Benefits of Technology Spillovers from Foreign Direct Investment in Central and Eastern Europe

In this paper, we construct a composite indicator to estimate the potential of four Central and Eastern European countries (the Czech Republic, Hungary, Poland and Slovakia) to benefit from productivity spillovers from foreign direct investment (FDI) in the manufacturing sector. Such transfers of technology are one of the main benefits of FDI for the host country, and should also be one of the main determinants of FDI incentives offered to investing multinationals by governments, but they are difficult to assess ex ante. For our composite index, we use six components to proxy the main channels and determinants of these spillovers. We have tried several weighting and aggregation methods, and we consider our results robust. According to the analysis of our results, between 2003 and 2007 all four countries were able to increase their potential to benefit from such spillovers, although there are large differences between them. The Czech Republic clearly has the most potential to benefit from productivity spillovers, while Poland has the least. The relative positions of Hungary and Slovakia depend to some extent on the exact weighting and aggregation method of the individual components of the index, but the differences are not large. These conclusions have important implications both for the investment strategies of multinationals and government FDI policies.

Entrepreneurial Inclination and Entrepreneurship in Hungary and in Europe

The lecture has two parts. The first part – based upon Eurobarometer data - briefly investigates the proportion and social characteristics of potential entrepreneurs in European comparative perspective. It proves that the Hungarian data are close to the European average. The second part – based on Hungarian panel data (1992-2007) - examines the predictive force of entrepreneurial inclination upon future entrepreneurial career and well-being. The results reveal that potential and actual entrepreneurship have strong social similarities and lasting connections despite the great volatility of both. Entrepreneurial inclination and more concrete plans have influenced the entrepreneurial career chances with nearly identical force, without cancelling each other’s effect. Entrepreneurial motivation has also to do with subjective well-being. The “push” factors of initial dissatisfaction with work and material conditions have lost their significance while the connection between entrepreneurial inclination and satisfaction with future perspectives persists in the longer run. The matrix of original motivation and further career provides a typology of four economic actors: that of “conscious” employees, “blocked”, “forced” and „conscious” entrepreneurs.

Innovation Management in Central and Eastern Europe: Technology Perspectives and EU Policy Implications

The purpose of this study is to investigate empirically the role of innovation activity in Central and Eastern Europea (CEE). We also identified those internal and external factors, which might cause improvements in innovation performance of CEE companies. Our main focus was on technology-based innovations within the healthcare industry. We applied qualitative research methods. Our findings demonstrate that CEE companies within the healthcare industry have significant contribution to European Union’s innovation performance. We found that key success factors of these organizations are based on four elements: knowledge management, access to financial resources, managing formal and informal networks, as well as achieving synergies between technological and non-technological innovations.

Knowledge and innovation as value drivers in professional services firms: an empirical research in Central and Eastern Europe

The purpose of this study was to investigate empirically the role of knowledge and innovation within Central and Eastern Europe’s changing economy. We applied qualitative research methods, and focused only on professional services firms within the region. The connection between knowledge and innovation as well as knowledge and competitiveness was analyzed by top managers and senior industry experts. Our findings revealed that knowledge might be a real value driver for professional services firms. These companies can significantly contribute to the development of modern economies through the dissemination of their internal best practices in knowledge management. We found three factors that might influence the effectiveness of knowledge management. These three factors are the involvement of international knowledge networks, the investments in human capital, and focus on critical resources. These issues proved to be essential to maximize the potential of knowledge and to leverage this into increased business performance.