Economic Analyses in Spring

2025 Since 2001, Külgazdaság has been publishing the forecasts and analyses of economic researchers, including the outlook of the National Bank of Hungary. For last year, the government’s goals included dynamic economic growth, mitigating inflation and a budget deficit of less than 3 per cent of GDP. By contrast, in 2024, the gross domestic product grew by a mere 0.5 per cent, inflation was suppressed only temporarily, and the general government’s EU deficit indicator (ESA 2010) was 4.9 per cent of GDP. The fourth quarter did not prove to be a success either. The government planned a dynamic start for 2025, but the statistical data for the first quarter of this year paint a picture of a stumbling economy. The government elaborated the budget law for this year on the assumption of 3.4 per cent GDP growth, a 3.2 per cent inflation rate and a 3.7 per cent budget deficit relative to GDP, but these hopes were dashed by March. And on 2 April, US President Donald Trump’s tariff hike plans devastated the global environment of the Hungarian economy, further worsening the outlook. This year, we asked prestigious economic researchers and analysts to publish their forecasts in Külgazdaság. As usual, the National Bank of Hungary presented a summary of its prognosis in this issue based on its 2025 Inflation Report. The manuscripts reached our editorial office between 7 and 15 April 2025.

Returnees in the domestic labour market

ÁGNES HÁRS – DÁVID SIMON

Labour emigration has become a significant labour market issue in the last decade(s). The extent of emigration, the composition of emigrants, their shortage and their possible replacement in the domestic labour market are closely related policy issues to which various responses have been formulated. Attracting the scarce reserves of the domestic labour market, which requires well-targeted and well-designed labour market training or encouraging returns with expensive and uncertain success, can expand supply. Above all, however, the little-studied natural return process needs to be understood. While some returnees stay at home, others repeatedly leave, commute or live and work abroad. In this process, neither emigration nor return selection is random, and migration thus involves a double selection, either positive or negative, which may determine the composition of returnees. This article examines the measurable impact of emigration on returnees, taking into account double selection: who are the returnees, do they work, and if so, in what form, and what premium, usually measured in terms of income, does their migration history place on returnees? The article seeks to answer these questions through a new data set created by the authors, allowing for a deeper and more factual analysis than before (with limitations regarding the current data). This article presents the first results of a longer study. The impact of returnees on the labour market at home can, of course, be raised, but the answer is beyond the scope of this article and will be answered later in the study.

Financing the real economy in the Central and Eastern European countries in the Covid and post-Covid period

ANDRÁS BETHLENDI

In the Covid and post-Covid period, the study examined eleven CEE countries to see whether the financing of the real economy was damaged, and to what extent did domestic lending processes support the economy’s recovery from the shock. Narrowing the analysis to the dominant banking sector in the CEE region, the relative financing of the real economy in six CEE countries has significantly decreased by 2023, and a creditless recovery has occurred. In the absence of structural changes, this phenomenon may re-emerge in the event of another future negative shock. The results show that in a significant part of the CEE countries, the resilience of the banking sector is weaker than in developed countries. Fiscal and monetary policy in the majority of countries have been basically moving in the same direction. The three macroprudential indicators examined (capital, profitability, and portfolio quality) already show higher cross-sectional variability. It is demonstrated that the development of bank loan portfolio quality and lending are mutually reinforcing factors. The relief of prudential and supervisory requirements showed no clear connection with lending. However, in the case of the payment moratorium, we got the expected relationship. The moratorium is a suitable tool for short-term shocks, but its longer-term application can weaken lending processes.

Review

Komlos J. Foundations of real-world economics. What every economics student needs to know (3rd ed.). New York, USA: Routledge

TIBOR BARDÓCZY

This review presents the third English edition of John Komlos’ book. The author offers a clear and frank critique of many components of mainstream economics. His basic thesis is that the capitalism we live under does not serve the interests of citizens but instead favours the enrichment of the elite. His argument is supported by examples and case studies drawn from recent decades of economic and social crises. The third edition of the book, which includes events such as the COVID-19 pandemic, highlights the mistakes of recent political and economic leaders and shows what an ideal – but market-based – approach to economics would look like. The review seeks to convey Komlos’ critical perspective, using practical examples from his book.

Inquiry of the editors of Külgazdaság

WILL THERE BE A NEW WORLD ORDER? IF SO, WHAT KIND? OR WILL CHAOS BE ORDER? MOREOVER, WHERE WILL HUNGARY LAND?

Global disorder, global (dis)order, global dis-order. The English term is varied depending on what the authors or the institutions want to emphasise. Cambridge Dictionary defines disorder as a state of disorder, a lack of organisation. The British Academy, on the other hand, also raises the question of whether ‘global disorder’ denotes a lack of order, or whether it should be described in terms of the extent to which disorder differs from the existing order. It launched an international dialogue to explore this question. The emphasis of ‘dis’ before ‘order’, whether in parentheses or hyphens, indicates that disorder in the global world, from politics to economics, ideologies to everyday life, is not a disorder in the ordinary sense, but a state of dis-order moving towards a new order. Thus, is an order of disorder emerging? Or is the lack of order, i.e. disorder itself, becoming the new order?

“In a world rife with geopolitical tensions, policymakers grapple with many crises, giving rise to what economists dub a new “global dis-order.” Concurrently, industrial policy is resurging, signaling a return to state intervention in the economy. While some argue for “de-risking” over “decoupling,” notable powers like the United States and the European Union are actively promoting policies aimed at reducing dependencies on China in pivotal sectors. This shift carries significant economic and geopolitical implications, fostering trade within politically aligned trading blocs.”

According to a recent publication by the Jacques Delors Institute, which focuses on possible global economic responses, there are other perspectives and interpretations. The world has survived the pandemic, has weathered a severe inflationary wave and could enter a new growth phase – if there is one. All this is happening as security-seeking blocs and powers try to protect their markets. The fragmented economic process is also being played out by changes in the balance of power between the centres of power: the BRICS are gaining strength, China is pushing forward more aggressively, the traditional liberal democracies in Europe are weakening, and the election of Donald Trump is itself a challenge, with the need to adapt. In addition, Europe continues to be weighed down and burdened by Russia’s war against Ukraine.

In this changing world, the Hungarian government wants to flee forward. The Prime Minister has tied himself and his country to three influential figures on the global stage – Donald Trump, Vladimir Putin and Xi Jinping – and has now plunged himself into a seemingly intractable conflict with the European Union. He has also set the course forward to the 3-6% annual economic growth path enshrined in the New Economic Policy Action Plan, guaranteed by economic neutrality.

What will come of this?

We asked the regular contributors to Külgazdaság to examine the global landscape as a whole or any element of it and write down their observations, hopes, or fears. The genres suggested range from gritty analysis to essays to the world of science fiction or dystopia.

However, free-flowing thoughts are also asked to be limited to 10,000 characters.

Responses were submitted to the editorial office between 18 January and 18 February 2025.

The editorial office of Külgazdaság

The creation of a common currency for a decentralised empire in the 16th century

Review on the book

Oliver Volckart: The Silver Empire: How Germany Created Its First Common Currency (Oxford University Press, 2024, 377 pages)

KÁROLY ATTILA SOÓS

In the first decades of the sixteenth century, the monetary disorder prevailing in the Holy Roman (practically German) Empire became increasingly problematic. Coins were issued by one-third of the approximately 360 imperial estates (elector kingdoms, princedoms, imperial cities, etc.). The total number of coins minted in the empire between 1480 and 1550 was estimated at 4500. Of course, not all of them circulated constantly everywhere. However, extreme monetary diversity – which also facilitated counterfeiting, i.e., copying coins with lower silver content – caused much trouble. Less trouble to “professionals” (merchants), and more to the “common man” (peasants, artisans, workers, etc.), whose political importance was increasing in that period.

Emperor Charles V (1519–1555) made important and not useless efforts to create a common currency. However, it seems that his successor Ferdinand’s diplomatic skills were necessary for shaping the compromises and consensus with the imperial estates required by the final success. He also found and hired excellent experts who were able to establish institutions that could guarantee the endurance of the important monetary reform.

Financial adaptation of sectors in the Hungarian economy during the coronavirus pandemic

BÉLA KÁDÁR – SZILÁRD HEGEDŰS

The coronavirus pandemic and the measures taken to mitigate its effects have had a significant impact on the Hungarian economy, with varying degrees of impact in different industries. The aim of the study is to analyse the financial performance of the industries affected by the pandemic and to identify the distressed and so-called zombie companies in the Hungarian economy. The research draws on financial data from more than 68,000 Hungarian small, medium and large enterprises for the period 2019-2022, with a particular focus on EBIT and revenue indicators. A new feature of the paper is an in-depth analysis of the sectoral changes caused by the pandemic and the structural weaknesses of the economy during the crisis. The results show that five of the 74 industries surveyed were particularly vulnerable, while the use of credit support was more widespread than the direct impact of the crisis would have justified. The study contributes to a better understanding of the resilience and weaknesses of the Hungarian economy to crises, helping to take targeted economic policy decisions.

Changes in the external financing of Central and Eastern European catching-up models after the 2008 crisis

TAMÁS TIBOR CSONTOS

This paper examines how external financing has changed in the catching-up models of Central and Eastern Europe after the 2008 crisis. The theoretical framework is based on the growth model literature, which has become a dominant trend in comparative political economy in recent years, but has so far paid little attention to the relationship between growth models and external financing. The paper uses comparative statistical analysis to illustrate changes in external financing, focusing on FDI flows, EU subsidies, remittances of foreign workers and changes in external debt. The results show that the role of FDI and external debt in external financing declined after the crisis, while the importance of EU grants and workers’ remittances increased. The study distinguishes three different groups of countries in terms of external financing, of which only one has remained FDI-oriented.

Domestic experiences of catching up and sustainability in the two decades after Hungary’s EU accession

IVÁN BÉLYÁCZ

This article examines the relationship between Hungary’s catching up and sustainability based on economic developments over the last twenty years. It analyses the consequences of enforcing economic growth and overheating the economy, the aftermaths of investment-centred economic policies, and playing down consumption. The author takes the view that, in the face of heightened government activism, increasing productivity, neglecting sectors and companies that generate high added value, permanently supporting an over-preferred group of companies, and marginalising the knowledge economy and green transition, are counterproductive to catching up based on environmental, financial and functional sustainability, and cannot be funded by the budget in a state of chronic over-allocation of resources. All this could lead to domestic socioeconomic development diverging from progressive international trends.

Freedom in trouble

Review of Joseph E. Stiglitz’s book The Road to Freedom – Economics and the Good Society (Melbourne, Allen Lane, 2024, e-book, 314 p.)

BENEDEK LITS

This review deals with Joseph E. Stiglitz’s book entitled The Road to Freedom, published in April 2024. The book aims to unravel the false dichotomy between freedom and security in economic theory and economic policy in an era when both economic and political governance see the triad of transactionalism, geopolitics and anti-freedom security as the key to progress. The review could not have been written with any other intention than to illustrate this, to present the main lines of argument in the book chapter by chapter, to put the issues in context where the text requires, to critique them, and finally to draw conclusions about freedom and what it really means.

Acquiescence cannot be the goal

Review on the book Kutasi Gábor (ed.): Economic policy. Economic governance of open economies (Ludovika Publishing House, Budapest, 433 pages)

OLIVÉR KOVÁCS

Economic policy is the area through which economics students can best experience that the knowledge provided by mainstream textbooks is far from being sufficient to understand what is really going on in the complex, open and dynamic socio-economic innovation ecosystem. The present volume under review, based on the contributions of 22 authors, suggests precisely that economic policy requires constant vigilance, attention, a holistic approach and a modern economic governance philosophy that seeks to understand the complexity and evolution of the global economy, while consciously avoid any kind of deceptive acquiescence.

The development of the rules of jurisdiction for cross-border individual employment contracts in the light of the relevant case law of the Court of Justice of the European Union

IBOLYA NAGY

The nature of employment contracts is that the legal relationship is asymmetrical so that in cross-border employment relationships, the employee is in the weaker party’s position for several reasons: first, due to the hierarchical relationship between the employee and the employer and, second, because in cross-border employment contracts, there is necessarily an international element (for example the habitual workplace or the place of establishment of the employer), which may differ from the employee’s rights. Private international law limits the parties’ autonomy, so an employer with considerable economic and information power cannot choose the jurisdiction of a court of a state that does not provide an adequate level of protection for the employee. The paper analyses the increasing presence of weaker party protection measures in the rules of jurisdiction through the relevant case law of the European Court of Justice.

Abstract

The Recovery and Resilience Facility at mid-term: a successful new support instrument of the European Union?

SAROLTA SOMOSI – BEÁTA FARKAS

At the heart of the European Union’s NextGenerationEU financial support programme, launched in 2020, is the Recovery and Resilience Facility (RRF) for crisis management. A radical innovation in the new funding architecture is that funds are secured through EU borrowing and disbursements are linked to the achievement of specific deliverables. The funding will be targeted at green and digital transition, as well as cohesion policy, and will be linked to Member States’ country-specific recommendations. The mid-term evaluation of the programme aims to explore the effectiveness of the RRF in meeting complex objectives, in particular green and digital transformation. After presenting the RRF, the study focuses on the EU Commission and peer reviews and assessments, and then analyses the performance of the six countries that have absorbed the most resources. The results so far show that there are encouraging trends in stimulating reforms, in particular the green transition. However, it is the experience with performance-based financing, an innovation that goes beyond the RRF, that is most questionable. This is remarkable because the experience of the RRF will influence the financing of cohesion policy in the seven-year budgetary period starting in 2028.

Industrial safety, risks, communication – specific characteristics of the Hungarian EV battery industry

ANDREA ÉLTETŐ

The paper published in Külgazdaság (No. 7–8, 2024) discussed the legal regulation of the Hungarian battery industry and its environmental impacts. This report focuses on the industrial safety risks inside and outside the factories, their governmental communication and the handling of local citizens’ activities. It is proved that South-Korean battery cell and recycling factories in Hungary have committed systematic and recurring irregularities over the past years, leading to worker hazards and accidents. The authorities proved to be powerless to efficiently deal with these practices. Factories seem to prefer profit interests over health and safety concerns. With the massive influx of Chinese factories, industrial safety risks will increase even in case of normal functioning. Instead of being correctly informed about this, the public receives a central propaganda that uses all the tools of greenwashing, while the authorities are trying to restrict concerned civil society groups by various means.

The quality of EU decisions and national sovereignty

JÁNOS HERMAN

EU decision-making is not competitive in a multipolar world. EU decisions are made in a heterogeneous, multi-stakeholder, sector-by-sector framework of rules, following lengthy and detailed negotiations between member states. The representation of the common European

interest, which in principle underpins the existence of the Union and the content of its decisions, is weak and often absent due to the nature of the bargaining process. The decisions therefore provide neither the impetus nor the direction for (further) joint action. The EU performs better in areas of Community competence and less well in foreign policy, which remains entirely within the competence of the member states. The limit to improving the effectiveness of decision-making is that the EU is built on a basis of intergovernmental consultation and negotiation, and can ultimately always be reduced to this. The institutional-structural development of the Union has been frozen at a half-way stage without political integration having been initiated. This is the root of the deficiencies in decision-making, which is why EU decision-making cannot be made truly effective by superficial corrections, i.e. by leaving intergovernmentalism intact. A series of crises and ordeals, the diminishing returns of the current decision-making model, and the forthcoming further enlargement of the EU could increase the ambition for reform. A modest but useful first step could be extending the scope of qualified majority voting.

The World Trade Organisation dispute settlement mechanism and its current crisis

ORSOLYA ANTAL

This paper aims to present the WTO dispute settlement mechanism from a broad perspective. Accordingly, it highlights the milestones that have marked the development of the dispute settlement mechanism. It discusses the competence of the Dispute Settlement Body (DSB), the procedure, the rules for the implementation of its decisions, and the elements of amicable dispute settlement, based on predefined rules, stressing that the application of these rules has so far guaranteed that stronger members do not oppress weaker ones. The paper also aims to present the procedure prior to the implementation of the decisions and the main features of the current dispute settlement crisis, including the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), given that in the current situation, this forum can be used if a Member State is not satisfied with the report of the dispute settlement panel.

Guns or butter: the fiscal readiness of EU member states for Russia’s war against Ukraine

GÁBOR KUTASI – ÁDÁM MARTON – GRZEGORZ WASZKIEWICZ:

The guns or butter dilemma is a special case of the trade-offs in public funds, which arises from the choice between defense spending with negative sum and welfare expenditures. Russia’s war against Ukraine activated this fiscal dilemma in various regions of Europe. The study is the first step in a multi-stage research process, in which it measures the preparedness of the selected European NATO and EU member countries in terms of the redistribution between defense and welfare expenditures using the cluster analysis method. The cluster variables include defense spending, CDS margin as indicator of risk for public debt, tax wedge as fiscal room of manoeuvring, the Gini index, and geographical distance from Russia. The analysis clearly distinguished five clusters. The major conclusion is that the geographical location gravitating to the war zone has already strengthened the redeployment of general government expenditures towards defense spending even during the less intensive period of the military conflict before 2022. Additionally, the fiscal room of manoeuvring, which would mitigate the welfare sacrifice of the redeployment, is also an important factor of the readiness.

Journal of Economic Literature (JEL) codes: C38, H56, I39

BULLETIN

Economic globalisation and global value chains

ISTVÁN ÁBEL – BENCE GERLAKI – MÁTÉ LÓGA – GYULA NAGY

This paper focuses on the negative changes in the drivers of economic globalisation and the development of global value chains in recent years. Several phenomena point to a slowdown and a shift in the direction of globalisation, while increasing geopolitical uncertainty has exacerbated disruptions in the supply chains linking the most diverse regions, industries and firms of the world economy. Mitigating the resulting risks has triggered policy responses – like decoupling, de-risking, reshoring, near-shoring and friend-shoring – and has also increased the importance of corporate adaptation and resilience. This is likely to lead to a new balance between globalisation and deglobalisation in which international production networks will continue to play a central role despite mounting pressures. Analysing the changing dynamics of these developments can provide a framework for discussing the economic policy responses to moderate the consequences of this challenge.

The new magic bullet of state aid? IPCEIs in Europe and Hungary

ÉVA VOSZKA

Industrial policy, including one of its key instruments, state aid, is experiencing a renaissance worldwide. As international competition between regions to increase state aid for companies intensifies in the early 2020s, the European Union is also trying new approaches, one of which is the funding of Important Projects of Common European Interest (IPCEI). The still incomplete dataset shows a strong concentration of this subsidy at both country and company level. This is why it is important to investigate what Hungary’s chances are of getting involved. After presenting and critically assessing the scheme, the paper explores this, analysing available documents and drawing on the views of the managing authorities, some of the companies and consulting firms involved. The initial experience suggests that, due to the basic features of the scheme and the characteristics of the Hungarian institutional system, IPCEI will not be the main instrument of economic restructuring in the country. Institutional and financial capacity constraints, lack of expertise and experience in many fields, poor coordination between governmental organisations and the various subsidy schemes, the weakness of Hungary’s formal and informal lobbying in the European Union, as well as the

lack of trust and other specific features of the domestic business culture are all obstacles to the effectiveness not only of IPCEIs but also of other governmental policies.

Journal of Economic Literature (JEL) codes: H71, L52, O31, O32.

BOOK REVIEW

From illiberal democracies to illiberalism

Review on the book of

Sajó, András – Uitz, Renáta – Holmes, Stephen (Eds.): Routledge Handbook of Illiberalism

(Routledge, London-New York, 2022, 998 pages)

FERENC KOLLÁRIK

By the last decade of the 20th century, it had become increasingly obvious that democracy, in and of itself, did not guarantee the promotion and protection of liberal values and freedoms. The term illiberal democracy was coined and proliferated to depict this phenomenon. Although the concept has been criticized by many, it has quickly become a very fashionable term in political science. Nevertheless, the professional discourse on the phenomenon has changed and expanded significantly in recent years, leading to illiberalism becoming a separate field of research. In fact, the concept covers an exceedingly complex set of phenomena, which overlaps with other ideologies and concepts in numerous aspects.

Journal of Economic Literature (JEL) codes: F52, K16

Keywords: illiberalism, illiberal democracy, democracy, rule of law

LEGAL SUPPLEMENT

Why different? Specific characteristics of the Hungarian battery industry – Legal background, environmental impacts

ANDREA ÉLTETŐ

Based on official documents, the paper addresses in detail, why battery production in Hungary cannot be discussed as if it were in another European country. The costs and risks of Hungarian battery production are high because of its specific characteristics, and if current practices remain unchanged, the environmental, health and social damage it causes will directly outweigh the benefits for the population. Experience has shown that large companies will obtain environmental permits (if they are required to do so at all), no matter how unclear certain issues remain. Regulations have not been adjusted to this huge battery industry. And even in cases where rules are appropriate, the centrally-mandated authorities are not only lenient, but even break the rules themselves in the interests of the companies. New government regulations are not helping the public, but the companies. There is also a weakening of transparency and inertia on the part of the authorities in many areas. Overall, the environment and nature protection aspect is not really being taken into account in this area.

Journal of Economic Literature JEL code: O25, P28, Q25, Q58.

Economic policy mix: a simplifying trilemma
ÁDÁM CZELLENG
The aim of this paper is to analyse the changing set of objectives of monetary and fiscal policies and to show the short-term and long-term effects of tools used according to these changing objectives in the face of different economic shocks. The paper empirically examines the changes in economic policies over the past 23 years using data from European Union member countries and presents simulation results associated with economic policy objectives. The simulation shows that, when taking into account the global financial shock, the energy price shock and the two shocks together, the highest level of social welfare over a ten-year horizon is achieved when central banks reintroduce the economic stabilization objective into their reaction function. The scientifically novel results demonstrate that the triple objective system, which is also identified for monetary policy and fiscal policy, is simplified into a dilemma of growth and stability, influenced by the state of the economy, the international environment, economic policy credibility and debt perceptions.
Journal of Economic Literature (JEL) codes: C15, E47, E61, F6.
Dragon fire: China’s natural gas relations with Russia
TAMÁS DUDLÁK
The article analyses the evolution, circumstances, geopolitical drivers and prospects of the natural gas policy negotiations and cooperation between China and Russia over the past decade. The energy policy relations between the two countries are an excellent example of the non-market challenges that major energy policy cooperation faces. Natural barriers (lack of infrastructure, long distances) and competition from other gas suppliers (Turkmenistan, Qatar, Australia, USA), which Russia has to overcome to supply the Chinese market, are significant obstacles to developing and deepening cooperation. The development of a direct natural gas connection between the two countries results from a long negotiation and bargaining process, during which political considerations have often overwritten purely economic considerations. The breakthrough could be linked to the 2014 Power of Siberia 1 gas pipeline agreement. China’s preference in its dealings with Russia is to expand LNG supplies, while at present, it is not in its interest to expand piped gas supplies by building the Power of Siberia 2. Although Russia would export more gas to China following Western sanctions against Russia in 2022, the rapid switch from Western to Eastern supplies is impossible due to insufficient infrastructure and production capacity in the Russian Far East. Due to the changing geopolitical landscape in the West and the slow development of natural gas relations in the Russian Far East, Russia has found itself in an increasingly weak bargaining position vis-à-vis China. As a result, there now is a paradoxical situation in which China, as a consumer, can influence the terms of natural gas supplies more than Russia, as a producer.
Journal of Economic Literature (JEL) codes: F51, F52, Q340.

Review on the book of Éva Várhegyi: The occupation of the banking system – How the political power is putting the banks at the service of the political power
(Magyar Narancs books, Tea Publishing House, 2023, 254 pages)
KATALIN MÉRŐ
Éva Várhegyi’s book guides the reader through the process aimed at giving the Orbán governments that came to power after 2010 as much influence as possible over the Hungarian banking system. The book is easy to read for the public yet written with great expertise. The book analyses in detail the steps in this process, broken down by segments of the banking sector. Following an analysis of the political “occupation” of Magyar Nemzeti Bank, Hungarian Development Bank (MFB) and Eximbank, it shows how political influence gained over private banks was consistently built up: How did the government first liquidate the cooperative banking sector in order to create MBH Bank, a large bank intended to compete with OTP, on the basis of cooperative banks, the Hungarian Foreign Trade Bank (MKB) and the Budapest Bank (BB). How it rewarded and punished foreign-owned banks to “tame them”, and what its controversial relationship with OTP was. The final chapter of the book, and the concluding reflections, take stock of the peculiarities and risks of the crony system set up by the ownership structure and operating system described earlier.
Journal of Economic Literature (JEL) codes: G21, G28, P14.

Toward new crises
Reflections on the book of Guillaume Pitron: The rare metals war – The dark side of clean energy and digital technologies
(Pallas Athéné Publishing House Ltd., Budapest, 2023, 288 pages)
GERGELY SALÁT
Rare metals and rare earth elements, a subset of rare metals, are often called the oil of the future, as they are essential in the technologies that will underpin the economy of the years to come. These special materials are particularly needed for the digital and green transition. However, there are two problems with rare (earth) metals: first, their extraction is highly polluting and second, some countries, notably China, have monopolized their production. This can lead to serious disruptions, conflicts, and even wars. French journalist and documentary filmmaker Guillaume Pitron’s book, which paints a rather worrying picture of the future, explores the dangers of rare (earth) metals.
Journal of Economic Literature (JEL) codes: F18, F51, F52, F64, O13, Q34, Q53.

Perception of the startup entrepreneurial function and regulation
TAMÁS ISTVÁN STIPKOVITS
The present study reflects on the definitions of startups in the business world, in the relevant economic literature and in statistics, and assesses the appropriateness of the startup concepts in the Hungarian legal regulation and provides comments on their development. To meet these objectives, it first takes stock of the relevant definitions (from the fields of business, literature, law and statistics) and then draws conclusions from the analysis of the individual definitional elements. For the conceptual elements, the parameters of high growth potential, small size and early life stage and their relationships with other definitional elements are explained. In the field of legal definitions, the absence of the criterion of high growth potential is noted. In the area of legal definitions, the concept of innovation needs to be rethought in terms of content and its relationship with startups. The article makes proposals for more precise regulation in these areas.
Journal of Economic Literature (JEL) codes: K20, K33, K34, K40.

The fate of battery waste: regulation and technology
DÓRA GYŐRFFY
The paper examines what happens at the end of the battery value chain, i.e. what happens to waste, in the context of the development of the battery industry in Hungary. To answer this question, it first analyses the new European battery legislation, adopted in the summer of 2023, which imposes very strict quality and recycling obligations on producers. The second half of the paper will present the recycling process from collection to processing, based on international literature, with a focus on the issue of profitability. It then argues that the establishment of the battery value chain in Hungary makes it almost inevitable that waste processing will also be in Hungary, which is an overall unprofitable activity given the currently available technologies. The question is who pays the losses. This leads to the conclusion that, in stark contrast to European objectives, the state-subsidised Hungarian battery industry is increasingly dependent on China, damaging the environment, and undermining the country’s development potential.
Journal of Economic Literature (JEL) codes K32, L52, L62, O14, O25.
Wage inequalities in global value chains: the case of the Hungarian battery industry
MÁRTON CZIRFUSZ
The battery industry, which serves the electric vehicle industry, is currently expanding in Hungary. Nearly 40 companies in Hungary will employ more than 30,000 people by the mid- 2020s. Drawing on the global value chain literature and the analysis of corporate finance data, the paper explores the share of labour in the value creation of companies involved in the battery industry. The cell manufacturing industry is the smallest contributor, but the pre-tax profits are significant elsewhere in the value chain. Wages differ between the direct core workers, domestic and third country agency workers. Direct workers can have the most significant impact on increasing the wage share, while third-country agency workers are the most vulnerable. In the context of the analysis of battery value chains, the study also points to methodological limitations of analysing corporate finance data.
Journal of Economic Literature (JEL) codes: E24, F23, L62, O15, P12.

Ownership and market structure changes in the Hungarian banking sector
ÉVA VÁRHEGYI
The Orbán government that came to power in 2010 envisaged significant changes in the banking sector as well as in other sectors qualified strategic by announcing that the proportion of national ownership should be enhanced to at least 50 percent; and the National Bank of Hungary, which supports the government’s banking policy, considered it desirable to reduce the number of credit institutions and intensify market concentration. The achievement of these goals was facilitated by the fact that after the global credit crisis of 2008, state interventions in competitive markets strengthened all over the world, especially in the financial sector. The article analyses the most important characteristics of the changes in ownership and market structure that took place in the Hungarian banking sector between 2010 and 2023, and then formulates hypotheses about the expected consequences in the operation of the sector and the inherent risks. Government actions transforming the sector raised the risk for society primarily by transferring a quarter of banking assets to private owners influenced by political power, which is unprecedented in the developed world.
Journal of Economic Literature (JEL) codes: G21, G28, P14.
A review of Markus K. Brunnermeier – Ricardo Reis: A Crash Course On Crises. Macroeconomic Concepts For Run-Ups, Collapses, and Recoveries
(Princeton University Press, 2023, 123 pages)
KÁROLY ATTILA SOÓS
The book aims at interpreting and presenting the logics and mechanisms of economic crises. These logics and mechanisms are being discussed by the authors as manifestations of relationships between macroeconomics and finances. After the analysis of processes and phenomena paving the way towards crises, we can read separately about triggers of crises on the one hand and about those factors – according to the concepts of general control theory, positive feedbacks –, which aggravate crises on the other. Finally, an important subject discussed in the book is governments’ reaction to the crises, both with its monetary and fiscal components.
Journal of Economic Literature (JEL) codes: D53, E30, E44, E52, E62.

review and reflections
Judit Karsai: From the Incubator to the Stock Exchange – The Functioning of Institutions Financing Start-ups in East-Central Europe
(Centre for Economic and Regional Studies, Institute of Economics, Budapest, 2023, 226 pages)
PÉTER BUCSKY
The countries of Central and Eastern Europe have embarked on the public funding of start-ups with great vigour in the 21st century. The emergence of new technologies is creating opportunities for transition countries to create companies that can capture a larger international market share. It is no coincidence that there is a strong demand to build local companies that can sell high value-added technologies in the global market. Following the transition to the market economy, the emergence of transnational corporations has succeeded in replacing the socialist planned economy with market-based systems integrated into the world economy, but there has been little role for locally owned and/or managed enterprises, or in a broader sense, local capital. Focusing on the role of the state and EU funds, this book demonstrates to what extent venture capital in Central and Eastern Europe is similar and different from that in developed countries.
Journal of Economic Literature (JEL) codes: M13, G24.

Inquiry of the editors of Külgazdaság:
Should we rethink economic policy after the Great Pandemic and the Great Inflation?
Recession or inflation? Or is there another choice? – this was the question asked a year ago by the editors of Külgazdaság. The question is still relevant today. In the days when we had sent out our survey question to our authors, the major central banks (US Federal Reserve, the Euro¬pean Central Bank, the Bank of England, and the People’s Bank of China) were trying to restore price stability by positive real reference rates exceeding the inflation rate. Global organisations and most countries are settling into a period of persistently high interest rates, whereas barely a decade ago, researchers still wondered how economies could function in a deflationary, negative interest rate environment.
After the dramatic turnarounds of the past decade, we approached our authors with a question inspired by the subtitle of a volume of essays edited by Olivier Blanchard and Lawrence H. Summers (Evolution or Revolution? Rethinking Macroeconomic Policy after the Great Recession): Should we rethink economic policy after the Great Pandemic and the Great Inflation?
This ironic question applies to economic policy pursued in Hungary as well. Whereas the National Bank of Hungary insists on maintaining a positive real interest reference rate, the government would expect sharp cuts and revert to the high-pressure economy model applied before 2022. However, the risks to economic growth are also specific for Hungary, such as the stall of the inflow of EU funds, the desire to accelerate the inflow of foreign direct investments and the import of labour force, and the reduction of energy dependence, which is not in line with the additional energy need of huge ongoing and planned investment projects. Risks also include the level of government indebtedness, which is well above the peer average, the opening of the income gap, and the slow but steady decline of budgetary expenditures for human services.
Our authors have been invited to discuss one of the segments of the exposed dilemmas at the global or national level, to analyse them thoroughly or to add new perspectives. Responses were submitted to the editorial office of Külgazdaság between 17 December 2023 and 16 February 2024.
Is electric vehicle battery production a bad idea? (An old debate in a new guise)
PÉTER MIHÁLYI
Throughout 2023, there has been a growing public response to the investments in Hungary – nearly 40 in number – that are already producing or will produce batteries in the foreseeable future or are serving industrial development related to their production. Highly respected academics have much discussed the subject. Most of the opinions published in the media are critical. On the one hand, they point to the risks of an immature technology that affects all countries. On the other hand, they consider that a further increasing commitment to the automotive sector would be a mistake in economic policy for Hungary. This short paper highlights four of these risks. It examines particularly the criticisms based on a quantitative analysis of value chains.
Journal of Economic Literature (JEL) codes: O14, O25, O32.

Central and Eastern Europe’s dependency on Russian gas: What changed between 2004 and 2019?
CSABA WEINER – PÉTER KOTEK – BORBÁLA TAKÁCSNÉ TÓTH

The Eastern enlargements of the EU increased the bloc’s dependency on Russian gas and contributed to a more cautious attitude towards these supplies. This paper assesses the Russian gas dependency of the 11 Central and East European new member states according to the ambition and execution of their national energy strategies. Two composite indicators of gas dependency – one for supply and one for demand – were used for this evaluation, beginning with the 2004 EU enlargement and ending in 2019, the last available full year before two large crises: the Covid-19 pandemic and Russia’s war against Ukraine. The main conclusions are that the new member states mostly reduced their gas dependency through supply-side measures, while the old member states increased dependency through some combination of worsening supply- or demand-side situation. New gas infrastructure capacity has contributed to the supply and route diversification of new member states from Russia, but reducing gas demand did not receive much attention until Russia’s invasion of Ukraine in February 2022.
Journal of Economic Literature (JEL) codes: O13, P28, Q41.

The catching-up of the Hungarian economy and its loss of position in the European Union
GÁBOR GULÁCSI – ÁDÁM KERÉNYI

Hungary has been a member of the European Union for 20 years, since 2004. Over the last 20 years, Hungary’s economic development has come significantly closer to the EU27 average, yet its position has deteriorated compared to most of the peer countries that joined the EU during the Eastern enlargement, falling from 3rd to 7th place. This paper discusses first the EU drivers of Hungary’s economic development, the impact of the single market and the transfers received from the EU. Second, it seeks the explanation for Hungary’s position loss relative to most of its peer countries. As the main causes of the position loss, it identifies the coalition governance leading to the dual (government and household) currency debt trap in the pre-2010 period and the market stifling effect of the authoritarian political regime established in the post-2010 period.
Journal of Economic Literature (JEL) codes: F15, F36, O47, O52, P20, P27.

BULLETIN

Silk roads in the Global South: “connectivity” and “bloc-formation”
Silk roads in the Global South: “connectivity” and “bloc-formation”
LÁSZLÓ LÁNG

According to Foroohar (2022), “[g]lobalisation as the dominant economic order will soon be replaced by regionalisation”. If this is true, then regionalisation, the process whereby countries in a geographical area seek to advance their national interests through multilateral dialogue and joint action, is set to revive in the developing world, or as it is called today, the Global South. The development of intra-regional transport, energy and communication networks is a prerequisite for existing regional cooperation groups to emerge from their moribund state. This very infrastructure development is offered by China’s ambitious BRI programme, under the banner of “connectivity”. This paper will examine at several levels whether this rare constellation exists, in which structural shifts in the world system and the self-interested grand project of China, the second most powerful global power, can reinforce each other to lift cooperating groups of countries and regions, large and small, out of the vicious circle of backwardness and underdevelopment. The answer in short: this constellation (again) does not exist. The sub-regions of the Global South are unlikely to re-unite on China’s “new silk roads” and boost their joint development with win-win solutions. Further evidence worth exploring is that the self-interests of the BRI may coincide with some of the languid transcontinental networking efforts, especially in Africa and Central Asia.
Journal of Economic Literature (JEL) codes: F02, F21, F55.

DISCUSSION PAPER

The publication strategy of the Hungarian academic community in business and economics: Differences and contradictions in the fields of economics and business and management
ZOLTÁN KRAJCSÁK – PÉTER SASVÁRI – GYULA BAKACSI

This scientometrics-focused study analyzes the publication performance of Hungarian researchers in the fields of Business, Management and Accounting (BMA) and Economics, Econometric and Finance (EEF) based on SciVal data and found that publication strategies are often mixed by merging these fields. This is partly due to the “common” journal list of the Hungarian Academy of Sciences (HAS), and partly to the continuation of past practices (traditions). Publication patterns do not perfectly reflect the affiliation to the two largest scientific committees of Section IX (Economic and Legal Sciences) of HAS. This concerns those who are members of the Public Body of HAS, since about one third of the best researchers involved in these two disciplines have not joined this academic network yet. Based on the results, a clearer separation between the subject areas at the level of doctoral committees of HAS would be welcome, as would clearer publication strategies for academics. The recognition of the value of being members in the public body of HAS would also be useful for the young colleagues. Using the framework of the forum provided by Külgazdaság, this report could also help to promote professional and strategic dialogue among domestic social scientists.
Journal of Economic Literature (JEL) codes: A10, M0.

Economic analysis in spring 2024

Külgazdaság has been publishing forecasts and analyses by economic researchers, including the outlook of the Magyar Nemzeti Bank, since 2001. Last year, the government’s goal was to avoid recession and bring inflation down to single digits by the end of the year. In this context, our authors were asked to compare these hopes with reality. Their forecasts varied widely. Magyar Nemzeti Bank predicted GDP growth of between 0 and 1.5 percent in 2023, the Makronóm Institute 0.8 percent and the Corvinus University of Budapest 0.2 percent, while GKI Economic research Co. and Kopint-Tárki Ltd. forecast a 0.5 percent decline. Contradicting the most pessimistic forecasts, the Hungarian economy shrank by only 0.9 percent in 2023. The annual inflation rate was anticipated by economic researchers to be fairly accurate, in the range of 17.5-19.5 percent, but they did not expect the average level of consumer prices in December to be only 5.5 percent higher than the previous year. In the current account balance relative to GDP, the researchers projected a deficit of 3.6-4.8 percent, but the actual figure was a slight surplus. The general government deficit, on the other hand, was unsustainable at 6.7 percent of GDP, far exceeding analysts’ expectations. These facts raised key questions for this year: will the fall in inflation be sustained? How fast will the economy grow after a period of very high inflation and corresponding monetary tightening? After last year’s fiscal looseness, how much fiscal tightening is expected this year?
The forecasts were sent to Külgazdaság between 8 April and 27 April 2024.

Upgrading behind the scenes – The role of foreign productions in the Hungarian film industry
TAMÁS VASVÁRI – DÓRA LONGAUER

Over the past decade, the Hungarian film industry has undergone remarkable expansion, primarily propelled by the surge in service productions, where filmmaking is outsourced to Hungary. The substantial growth can be attributed to lower production costs, complemented by state subsidies, and a cadre of well-trained film professionals. Notably, there is not only quantitative but also qualitative progress, evidenced by a milestone achievement in 2022: a Hungarian professional earned an Oscar for outstanding performance in an international production filmed in Hungary. This underscores how collaboration between foreign and domestic crews fosters developmental strides for Hungarian professionals, potentially influencing the overall quality of domestic films. This research delves into the vertical and horizontal impacts of international productions on the film industry, utilizing a pioneering database sourced from IMDb (International Movie Database). Our research unveils a noticeable improvement in the quality of foreign productions. Moreover, these productions are increasingly leveraging the expertise of domestic professionals, while the proportion of Hungarians in key roles has also risen. Despite the inherent duality within the film industry, akin to the manufacturing sector in Hungary, a meaningful interconnection persists between domestic and foreign productions. This interplay results in the transfer of experiential knowledge gained from international productions to Hungarian films. Our findings reiterate the pivotal role of relevant domestic actors, competitors, and skilled labour as conduits for knowledge transfer, affirming that the presence of foreign players can be beneficial to the host economy only when such domestic elements are in place.
Journal of Economic Literature (JEL) codes: L23, L52, L82, Z11.

Populism models in Central and Eastern Europe: a demand-supply approach of contemporary populist economic policies
A review of István Benczes (Ed.): Populism models in Central and Eastern Europe: a demand-supply approach of contemporary populist economic policies
(Routledge, London–New York, 2024, 279 pages)
FERENC KOLLÁRIK

Following the Great Recession of 2008, the proliferation of populism could have been witnessed in several regions of the world. Nevertheless, contemporary populism has become a more complex phenomenon and can be characterized as an adaptive system compatible with almost all kinds of economic and political institutional structures. Whereas political science plays the leading role in researching populism, an economic approach might also contribute to the better understanding of this phenomenon. However, it requires going beyond the framework of classical macroeconomic populism and including broadly understood institutions in the analysis. Moreover, in addition to the factors that determine the demand for populism, greater emphasis should be put on the supply side as well. Central and Eastern Europe, where populism displays a very diverse pattern, offers an excellent field for this type of investigation.
Journal of Economic Literature (JEL) codes: F52, E02, P16, P27.
Keywords: populism, economic populism, economic policy, institutions, Central and Eastern Europe.