Külgazdaság Vol. 9-10/2021

The effects of inward foreign direct investments on Hungarian economic growth – heterogeneity by country of origin


After the regime change in 1989, Hungary has been involved in globalization whose one of the most important component are international capital flows. Within a rather short period of time, Hungary has become an attractive target for foreign direct investments (FDI). By now, the weight and role of foreign capital in the Hungarian economy is beyond question. The effects of FDI on the recipient country’s economy have been analysed for a long time in the relevant economic literature. The major conclusion is that FDI can foster economic growth. The main channel of the positive effects is technology transfer: FDI investors bring advanced technology and knowledge that can improve the recipient country’s economic performance. Accepting the existence of the transmission channel, it is assumed that the more developed the investor country, the stronger the effect is, since an investor of a developed country can bring more advanced technology and know-how. In this paper, this hypothesis was tested with the help of the so-called autoregressive distributive lag model on Hungarian macro-level data ranging from 2001 to 2018. The results confirm our hypothesis. Journal of Economic Literature (JEL) codes: F210, F430.

Hungarian export opportunities in the countries located along the routes of the New Silk Road


The New Silk Road has been China’s largest project ever, with the main goal of promoting economic development and networking in Asia, Europe and Africa. Today’s globalization, and the dramatic decline in specific transportation costs, as well as the development of railway technologies and the transformation of political structures, have once again put the construction of a “modern” Silk Road into the crosshairs of the Chinese state. Hungary has the potential to join the initiative through three railway lines. The report identified and proposed product groups and products for Hungarian exports to countries located along these railway lines. Thanks to the New Silk Road, and particularly to the development of rail transport, Hungary’s export structure could be transformed. The major conclusion of the paper is that domestic companies should focus mainly on agricultural, mechanical machinery, and pharmaceutical products, as they are perfectly suited to rail transportation in terms of both value/weight ratios and logistics. Journal of Economic Literature (JEL) codes: F13, F17, F21.

The digitization rate of Hungarian SMEs – could we then become ‘Digital Frontrunners’?


The study analyses the position of Hungarian SMEs in the European Union in terms of digital development, using McKinsey’s (2018a) conceptual framework of the digital development of EU * Brávácz Ibolya PhD, egyetemi adjunktus, Eötvös Loránd Tudományegyetem, Gazdaságtudományi Kar. E-mail: Bravacz.Ibolya@gtk.elte.hu Krebsz Rebeka, MSc Vállalkozásfejlesztés, projektmenedzser, Cognizant Technology Solutions Hungary Kft. E-mail: rebeka.krebsz@cognizant.com A kézirat első változata 2021. július 6-án érkezett szerkesztőségünkbe. https://doi.org/10.47630/KULG.2021.65.9-10.60 Külg. 9-10.indb 60 2021.11.08. 21:13:09 61 A magyar kis- és középvállalkozások digitális fejlettsége – Lehetünk-e… member states. The aim of the study is to test McKinsey’s (2018a) findings for Hungary based on data from secondary sources. The results show that the digital development level of Hungarian SMEs is still significantly below that of the most advanced EU member states and

the EU-28 average, and is only beginning to catch up with the latter. The paper refutes, refines and nuances the conclusions of McKinsey (2018a) for Hungary. Journal of Economic Literature (JEL) codes: O11, O33, F63.

The Anatomy of an Economic Catching-up The Korean puzzle – from hermit to cosmopolite (Akadémiai Kiadó, 2020, Budapest, 270 pages)


The article presents and analyses László Muraközy’s latest book. It covers two thousand years of economic history of the Korean peninsula, but focuses on the developments of the 20th century, with a special emphasis on the developmental state that emerged in the second half of the century. Following a brief introduction, the paper reviews the book chapter by chapter, not only providing a concise introduction to each chapter but also supplementing the chapters in several cases and pointing out shortcomings. Amongst these, it is worth mentioning that the democratisation processes of the 1980s and the consequences of the 1997/1998 financial crisis should have been discussed in greater detail in the book. Moving on to the present day, the role of SMEs and Foreign Direct Investment (FDI) in public industrial policy should also have been discussed, as they can be instruments of a developmental state adapted to globalisation. Journal of Economic Literature (JEL) codes: E6, F40, F52, F54, F63, G01, N00.

The development of the right to regulate and public exceptions in bilateral investment treaties


Bilateral Investment Treaties, or BITs, are extremely widespread worldwide and impose numerous obligations on contracting states. It has become a more and more frequent question in recent decades whether these treaties should contain provisions guaranteeing the states’ right to regulate, especially with regards to certain public interest measures, in light of the uncertain arbitral practice. And if there should be such a provision, its exact form and nature is still another question. The objective of this study was to examine the development of this right through certain highlightable BITs, dealing with both indirect and direct examples of the right to regulate. The result of the study is that it became possible for the author to create a developmental map of the concept, suggest a de lege ferenda recommendation on an ideal right to regulate and public exceptions provision, and draw conclusions with regards to the probable future. Journal of Economic Literature (JEL) code: K33.

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Külgazdaság Vol. 7-8/2021

Components of nominal convergence: real economic and price level convergence in the European Union between 1995 and 2019


Significant cross-country differences in real income levels are accompanied by sizable differences in price levels, and, in the longer run, convergence in real income levels goes together with convergence in price levels. Although the cross-country comparison of nominal per capita GDP levels at current exchange rates is neither suitable to measure real income differences, nor their changes over time, their decomposition into a real and price component can reveal the contribution of the two factors to nominal convergence. The decomposition may be performed by drawing on two statistical sources, providing conflicting indications with respect to relative price and real changes in the case of several member states of the European Union. However, both sources suggest that the

rapid nominal convergence of the Central and Eastern European member states between 1995 and 2008 mainly stemmed from the swift convergence in price levels (real exchange rate appreciation), while the deadlock in nominal convergence after 2009 is mainly due to the halt (reversal) in price convergence. Real economic convergence of the CEEU region continued in the 2010s, albeit at a slower pace. Journal of Economic Literature (JEL) codes: E01, F43, O47, O52.

Globalisation, regionalisation and geography: does distance still matter?


The leitmotif of this paper is ’rivalry’ between globalisation and regionalisation, which – at least at the level of academic discourse – intensified around the turn of the millennium. Globalisation seemed to be receding, regionalisation to be gaining ground through the 2010s, when nation-states ‘re-arrived’. In the meantime, and despite radical technological and ICT changes, international economic flows apparently continued to gravitate towards home regions, without being followed (with literally one or two exceptions) by economic and the underlying security policy cooperation and institutionalisation in home regions. It is within this framework, at the boundaries of the disciplines of international relations, international economics and geography, that this paper seeks answers, or rather, poses questions, with an aspiration to finding answers through further research. The presumed academic added value of the paper is that its analyses do not dissolve in the inevitable complexity of international flows and levels discussed but is able to define specific hypotheses and calls for future academic inquiry. Journal of Economic Literature (JEL) codes: F14, F15, F23, F50

Russia’s foreign trade: impacts of the WTO-accession and the sanctions imposed in 2014


Russia became member of the World Trade Organization in 2012, but in 2014, several partner countries imposed trade sanctions on Russia as a response to its aggression against Ukraine 92 Csontos Máté – Udvari Beáta triggering processes that could have significant impact on Russia’s trade. Academic research analysed the impact of Russia’s WTO membership and the sanctions on the economy separately. This paper established relationship between these two issues: namely, the research objective was to analyse whether trade sanctions introduced against Russia in 2014 influenced the unfolding effects induced by Russia’s accession to the WTO, and if yes, to what extent. A gravity model was applied that involved 30 partner countries covering 85 per cent of Russian foreign trade. The major conclusion of the paper is that joining the WTO affected Russia’s exports favourably, however, the trade sanctions did not weaken this trend.

The force majeure event as an exemption opportunity


An unforeseeable, unavoidable, objective external event, the so-called force majeure situation might exempt non-performing companies to pay compensation for violation of their contractual duties. The restrictive measures of Covid-19 epidemics such as air transportation prohibition, borders closure or extraordinary licensing have resulted in significant losses in operation of global supply chains. The article aims to examine the liability issues caused by the delayed or deleted deliveries referring to force majeure from the business professionals’ point of view. Based upon the lessons of the presented litigation and the results of the questionnaires addressed to Hungarian enterprises, the article aims to point to the complexity and difficulty of force majeure principle, contractual clause, and national regulation. Journal of Economic Literature (JEL) codes: K220, F190.

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Külgazdaság Vol. 5-6/2021

The export-enhancing effect of a stronger relative protection of intellectual property rights


The objective of this paper is to introduce the notion of relative intellectual property rights protection strength and to analyze its effect on the international trade of goods. This new measure is interpreted as the strength of the intellectual property rights protection regime in one country relative to the strength of such a regime in a trading partner country. In the model presented in this paper, this factor affects the range of products that flow from an exporter country to its trading partner. The model predicts that if the relative intellectual property rights protection gets stronger in an importing country, then it attracts more imports of both high-tech and low-tech products into the country. The paper also analyses Hungary’s exports to empirically test the model’s predictions. Our final conclusion is that Hungary’s high-tech exports are affected positively and significantly by the strengthening of the trading partner country’s relative intellectual property rights protection, and that this effect is stronger than the otherwise also positive and significant impact on low-tech products. Journal of Economic Literature (JEL) codes: D21, D23, F14, K11.

Difficulties in diversification in resource-rich countries – the case of Botswana


Resource revenues are difficult to manage and they require specific expertise and wisdom from governments of resource-rich countries. This paper synthesizes two main strands of the existing literature by presenting the different transmission channels of the resource curse and by analysing the resource-based development strategy of Botswana. Most developing countries are resource-rich and undiversified – despite adequate and consistent government policies aimed at diversification. This paper points out that the failure of these diversification strategies is due to related endogenous and exogenous factors. Resource-rich developing nations need complex, country-specific solutions to catch up. Journal of Economic Literature (JEL) codes: L72, P28, F31, R58.

Digital transformation and Industry 4.0: experiences from Hungary, Serbia, Slovakia and Romania


Digitization affects all industries and transforms them significantly. The digital transformation has been accelerated by national and international measures taken in the context of the Covid-19 pandemic. Nevertheless, the effects of digital transformation and Industry 4.0 have yet been discussed in only a few empirical studies, making it one of the most important socio-economic research areas of our time. Not far from closing this research gap, but rather widening it further, the practice of 302 domestic companies and firms located in countries surrounding Hungary and involved in Industry 4.0 was explored with the help of questionnaire research. The results identified the focus areas and maturity of the examined digital and Industry 4.0 companies, as well as their spatial specificities. Furthermore, it was explored what companies active in Industry 4.0 expect from key actors in the digital and industry 4.0 ecosystem. The article also makes economic policy recommendations and identifies a number of further research areas. Journal of Economic Literature (JEL) codes: L22, L23, L25, M11, M15, M16, O14, O19, O32, O33.

Integration and digitalisation in the Central and Eastern European automotive industry


The role of the Central and Eastern European countries in the automotive industry of the EU is significant: they contribute to the competitiveness of the EU through their cost-based advantages and advanced technological environment. How have the location advantages of the region changed lately? How can digitalisation affect location and investment decisions in the automotive industry? This report analyses these changes in the trade cost theory framework, and through a firm sample. Its major conclusion is that the ever-wider application of digitalisation reduces trade costs and opens up new perspectives for firms, also in the Central and Eastern European automotive industry that has by now deeply integrated in the EU sector, while this may at the same time appear as a threat for peripheral locations. Journal of Economic Literature (JEL) codes: F15, F23, L62, O14.

Digitalisation and location advantages in Hungary


The slowdown of globalisation and the pandemic intensified the reorganisation of global production chains. In this process, multinational enterprises reconsider location advantages. Modern companies function in a digitalised environment, new business models are created with the increasing importance of factors such as innovation, digital infrastructure and international cooperation. Most indicators of digitalisation still display a laggard position for Hungary, particularly for domestic small- and medium-sized enterprises. The article analyses how the previous main Hungarian location advantage, the skilled labour force has vanished and how the stable legal and business environment has eroded. As political intentions to upgrade the education system in order to create the necessary competencies has been missing, Hungary will not be in the position of taking advantage of digitalisation: it is likely to lag behind in international competition. Journal of Economic Literature (JEL) codes: I20, J24, L23

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Külgazdaság Vol. 3-4/2021

Economic analyses in Spring 2021

Külgazdaság has been publishing the analyses and the forecasts of the economic research institutions since 2001 and we follow the tradition in this issue. As to the Spring World Economic Outlook of the International Monetary Fund, “global prospects remain highly uncertain one year into the pandemic. New virus mutations and the accumulating human toll raise concerns, even as growing vaccine coverage lifts sentiment. (…) Global growth is projected at 6 percent in 2021, moderating to 4.4 percent in 2022.” But the European outlook is more modest and even Hungary will lag behind the 2019 results – this is the consensus domestic research institutions have concluded. It is only Magyar Nemzeti Bank (the National Bank of Hungary) that gives a chance to offset all the losses of the economy had suffered in 2020. Financial Research Plc. published its forecast on March 24. The National Bank of Hungary introduced its Inflation Report on March 25. GKI Economic Research Co. released its outlook on March 30. Századvég Economic Research sent its analysis to Külgazdaság on March 31. KopintTárki Institute of Economic Research Co. closed the series of presentations on April 7. Journal of Economic Literature (JEL) codes: A1, E0, E6.

A new mega-regional trade agreement: Regional Comprehensive Economic Partnership


The objective of this paper is to provide a comparative evaluation of the recently signed mega-regional trade agreement, the Regional Comprehensive Economic Partnership (RCEP). From among the broadly defined antecedents, the report gives an overview on the circumstances of the

emergence of the Transatlantic Trade and Investment Partnership (TTIP), the TransPacific Partnership (TPP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These initiatives are closely associated with the fact that since its foundation in 1995, the World Trade Organisation (WTO) has been unable to strike any important multilateral agreement. The failure to nominate new members to the Appellate Body has, by now, paralysed the WTO. However, the signing of the RCEP, together with CPTPP, represents the rise of Asia and the Pacific region and, at the same time, the diminishing influence of the United States in the region. Journal of Economic Literature (JEL) codes: F10, F13, F15.

Key issues for deepening the European Union Description and reflections on the book Péter Halmai: Deep integration. Economics of Economic and Monetary Union (Akadémiai Kiadó, 2020, Budapest, 538 pages, in Hungarian)


In his book, Péter Halmai discusses the theoretical, economic strategic and economic policy aspects of European integration. It provides a new, comprehensive analysis of the economics of the economic and monetary union. He points out that European integration is a deep and broad form of regional economic cooperation. It explores and demonstrates that depth is crucial to the European integration. A novelty is the analysis of the main features of deepening, the complex presentation of the economic mechanisms, determining factors and the institutional system facilitating deep integration Journal of Economic Literature (JEL) codes: F15, F36

Plurilateral international treaties in the system of the World Trade Organization DALMA TAKÓ The Doha Round made it clear that the multilateral treaty system of the World Trade Organization is not operable. The consequences caused by this fact – a long-continued crisis and serious tensions – need to be solved. Among the possible solutions, plurilateral treaties get more and more attention in international trade law. However, there are several different opinions on these agreements. Due to the increasing actuality of this issue, this paper deals with the definition, status, role and significance of plurilateral treaties within the treaty system of the WTO. These aspects are examined not only on the basis of the Marrakesh Agreement, but also from the perspective of sources available in public international law and international trade law. The purpose of the paper is to expose the current problems in connection with plurilateral treaties and also, to possibly answer emerging issues. Journal of Economic Literature (JEL) code: K33

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Külgazdaság Vol. 1-2/2021

Digital transformation and new actors in manufacturing value chains


The point of departure of this paper is the old new phenomenon of industry convergence, being intensified by digital transformation. Zooming in on manufacturing value chains it highlights that one manifestation of industry convergence is the multiplication of participants, originating in non-manufacturing sectors. The paper explores the specific features of digital technologies and firms’ digital transformation strategies that enhance the number and increase the importance of cross-sectoral transactions and drive industry convergence. Journal of Economic Literature (JEL) codes: L23, L60, O33

Dispute with the EU critique of an extreme leftist


Perry Anderson in three major studies maintains that the European Union is an antidemocratic, neoliberal construction that attacks national sovereignty and exploit the poor member countries and support the dominance of a narrow oligarchy. He concludes that the European Union has to be destroyed. This article discusses Anderson’s main arguments, questions the real existence of national sovereignty, especially in case of smaller countries, and proves either the mistakes or the superficiality of the critiques. Journal of Economic Literature (JEL) codes: F15, F60

Can post-crisis financial regulation become more robust in the years of national implementations?


Constant and recurring elements of the discourses related to financial regulatory reforms in recent years are the concerns about the complexity of regulation, that could lead to regulatory fatigue. Elementary changes in the financial sector depend however on the success of national implementations. The examination of the issue of complexity in financial regulation is therefore topical and necessary. The paper takes a look at the theoretical approaches along which the harmfulness or necessity of complexity can be judged also in different regulatory constellations. Furthermore it presents the concept of a robust financial regulation that can contribute to minimize

unexpected complexity through fine-tuning financial regulation and could also be an appropriate response to the fundamental complexity that characterises the system. Journal of Economic Literature (JEL) codes: G01, G20, G21, G28, G31, G32, G33, H12

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Külgazdaság Vol. 9-10/2020

EMU 2.0 – Responsibility versus solidarity?


Deepening of the Economic Monetary Union is the key issue for the European integration. During the debates on EMU 2.0, two approaches have emerged. These take different positions in terms of the interaction of solidarity and responsibility, and of risk sharing and risk reduction. In fact, Solidarity and Responsibility of the Member States are two sides of the same coin. The new synthesis of these two points of view allows substantive progression. At the heart of the EMU reform there can be deeper economic and financial union, resilient structures, the increase of risk sharing and the reduction of inherited risk. Successful integration can be achieved by inclusive, highly explained, understood and adopted reforms. All this is not only possible through “large packages” of the EMU 2.0 reform. At the same time, it is necessary to clarify the critical mass of these measures (“small package”). Journal of Economic Literature (JEL) codes: F02, F15, F17, F43, F55.

Scramble(s) for Africa – Some issues of global economic integration and marginalisation


The paper compares the recent scramble for Africa in general and Sub-Saharan Africa in particular with the previous ones led by the great powers. The comparative approach focuses on the identification of similarities and differences with the aim of providing a nuanced view on the scrambles for the resources of the continent. Its major conclusion is that the increasing influence of great powers over time has nothing particularly new in it and behind similar interests can be identified. Sub-Saharan Africa is still dependent on external markets, and the economic powerhouses of the world still regard it both as a resource base and a market for their own products. Despite the scrambles that took place in different time periods, the involvement of the great powers could not reverse the marginalisation of Sub-Saharan Africa in the global economy. The core countries of the world economy may transform the trade pattern of the region to a certain extent, but the room of manoeuvre still remains quite limited for the less powerful open economies of the continent. Journal of Economic Literature (JEL) codes: F54; N17; O10.

Risks of the Hungarian economic structure


Foreign trade relations play a decisive role in Hungary’s economy, as a result of which trends taking place in the world economy may have a significant impact on its economic performance. Consequently, the position of industries in global value chains and the structure of input-output relations are relevant factors in terms of Hungary’s economy. The objective of this study is to analyze the dependence of domestic sectors on inputs and outputs on the basis of which the risks inherent in foreign trade relations for the stable operation of the economy can be identified. According to the results, besides the automotive industry other domestic sectors such as the manufacture of computers, electronic and optical goods and the manufacture of machinery and equipment n. e. c. also have strong cross-border exposure to global value chains. The majority of these industries have strong ties to the German economy, however, some of them also significantly depend on other countries, such as China, Italy, Austria or Denmark. Journal of Economic Literature (JEL) codes: C67, O25.

The Crisis Calls for Rethinking Economic Policy

Some thoughts inspired by Stephanie Kelton’s book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy Public Affairs, 2020, New York


The global scale of the COVID-19 pandemic renders traditional tools of macroeconomics illsuited for handling the crisis. A growing consensus unfolded that it is time to rethink economic policy. There is a need for prompt and large fiscal and monetary intervention. The heterodoxeconomics represented by modern monetary theory (MMT) offers a novel approach to assess and meet these needs. MMT calls for countries that can print their own currency to ignore debt-to- GDP ratios, rely on the central bank to backstop public debt, and continue to run deficit spending unless and until unemployment and inflation return to normal. Proper use of this approach requires a clear understanding of the functioning of the monetary and banking system. Godleytype stock-flow consistent macroeconomic accounting helps to navigate with these and other real economic and ecological constraints. Stephanie Kelton’s book The Deficit Myth does a good job by discussing these important topics from a new perspective, in a manner that was simultaneously shocking and yet compelling. Journal of Economic Literature (JEL) codes: E12, E52, E62.

Is the progressive turnover tax to be sanctioned?


The article provides an explanation for the case law on the EU Member States’ progressive taxation, levied on turnover in the light of the harmonised EU law. The introduction of special sectoral taxes has become an important measure of local tax policies, which in part generate significant budget revenues but, more importantly, they are also designed to protect the position of weaker domestic competitors. This policy raises the suspicion of illegal state aid, but now this debate seems to be settled after a number of judgements decided by the Court of Justice of the EU in favour of the Member States. These judgments came as a general surprise to experts in the Member States concerned because the covert, yet effective state aid provided to domestic competitors seems obvious for those who live here. However, the EU’s existing ‘legal toolbox’ has proved to be insufficient to stop the Member States from following a policy of illegal state aid. The law requires clarity, and the practices that can be observed in the case of the apparently selective sectoral taxes can be hardly disguised. In this sense, even the judicial bodies of the EU, living to some extent in an ivory tower, cannot be blamed either. Journal of Economic Literature (JEL) codes: F02, H27, K34.

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Külgazdaság Vol. 7-8/2020

Innovative companies – innovative investors

Western experiences of equity market for startups


In addition to traditional venture capital funds, business angels, business accelerators and incubators, as well as crowdfunding platforms play an important role in financing startup companies. As these market players are relatively new, little experience has been gained with their operation. It is not yet known whether the market reorganization between players in this capital market will prove to be lasting, especially in view of the unfolding global recession in connection with the spread of the COVID-19 pandemic. However, learning from experience can be beneficial to less developed regions for the creation and successful expansion of startups using alternative sources of capital and associated technical support, networking, market knowledge and men­toring. The article provides an overview of the functioning and development trends of the new institutions providing equity financing, including their cooperation and competition, as well as their impact on the sponsored businesses. The trend so far indicates a decline in the importance of traditional venture capital funds in financing startups and early-stage companies, as these funds increasingly turn to larger-scale investments by more mature companies. This process has been accompanied by a stronger emphasis on the participation of large corporations in markets in many forms, the increasing role of institutionalized business angels, business accelerators and incubators, and the development of crowdfunding platforms providing capital through community funding. An important lesson is that successful former startup founders, utilizing their experience and wealth, play a key role in the preparation and execution of capital investments in startups in all types of alternative capital organizations. Thus, the successful development and capital supply of startups are becoming the result of a self-reinforcing process.

Journal of Economic Literature (JEL) codes: L26, G20, G23, G24.

Keywords: Entrepreneurship, Startup, Equity finance, Venture capital, Business Angel, Accelerator, Crowdfunding.

The European Union and China: conditions of the balanced trade relationship


China is one of the dominant trade partners of the European Union, however, the risks and geopolitical concerns of economic relations have come recently to the fore in the EU’s trade strategy. In this study, multivariable linear regression is applied based on the data of OECD countries to reveal the factors which can help to avoid the import exposure from China. The analysis of the period between 1992 and 2018 confirms the impact of factors which are considered decisive for import exposure in the relevant literature. The number of free trade agreements and the growth rate of medium and high-tech products compared to the total industry show the highest explaining power. The lesson of this analysis is that on the one hand, the EU should insist on rule-based free trade relationships despite the current worldwide protectionist trend. On the other hand, a successfully implemented industrial strategy has crucial importance for the balanced trade relations with China.

Journal of Economic Literature (JEL) codes: F13, F14, O24.

Keywords: European Union, China, trade, import exposure.

The Brazilian Variety of Capitalism


The article analyses the major institutional spheres of the Brazilian market economy and the interrelationships between their elements based on the approach of the Varieties of Capitalism (VoC) school. For a better understanding of the path dependent nature of the Brazilian economy, the firm-centred perspective of the VoC is embedded in the analysis of the political system, and changes in the economic role of the state are also considered.

The case study analysis of the Brazilian market economy and its operational logic within this extended theoretical framework offers a novel approach in the domestic and international literature and results on the formulation of novel theoretical and practical insights regarding Brazil’s development path and in more general terms late comer emerging economies and the middle income trap.

The election of the radical far-right president, Jair Bolsonaro by the end of 2018 can be explained by one basic message: the promise of change. In contrast to this, according to the main argument of the paper the basic mechanisms of the Brazilian market economy are dominated by state guidance, hierarchical structures and informal relations that are long-standing and stable features. The objective of the study is to prove that these unique operational logics and principles have been sustained even during the decade of the social developmental state in the 2000s and have not been substantially changed during the years of the (neo-)liberal economic policy turn starting in 2012. The elitist, hierarchical and informal relational organization of the Brazilian market economy is expected to be further strenghtened in the light of recent political and economic changes.

Journal of Economic Literature (JEL) codes: O10, O54, P16.

Keywords: Brazil, Varieties of Capitalism, system paradigm, developmental state, middle income trap, path dependency.

Legal challenges of the retention of worker status as reflected in recent case-law of the Court of Justice of the European Union


In recent years, a growing number of cases related to the retention of worker status have em­erged in CJEU jurisprudence with reference towelfare benefits, requiring a much deeper analysis of the field treated earlier as peripheral. Such an analysis seems especially justified in the light of the current political and legal discourse concerning the issue of free movement, focusing on the question of equal treatment in the field of welfare assistance for mobile citizens. The purpose of this study is to present and put into context the relevant case-law of recent years by analysing the judgments of the CJEU in two cases that are benchmarks in this field: the Tarola and Saint Prix cases. Both cases highlight the key role that economically active status continues to play in integration law. These judgments also shed light on the challenges arising from the difficulties in distinguishing between the economically active and inactive EU citizen statuses. This issue emerged as an increasingly grave problem in the field of law of free movement, posing a serious dilemma for law enforcement.

Journal of Economic Literature (JEL) code: K31 Labor Law. Keywords: retention of worker status, equal treatment, welfare benefits, free movement of wor­kers.

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Külgazdaság Vol. 5-6/2020

Productivity, Innovation and Foreign Trade (Hungarian Firm-level Data)


In addition to exports, imports are important factors too when the relationship between innovation and productivity is analyzed at the level of firms. Innovation boosts productivity, and this impact has been changing in Hungary between 2005 and 2016. The estimated impact increased until 2010, then declined and fell to the level of 2005 in 2016. This impact was exacerbated by the continuous decline in the share of innovative firms.

Working abroad, changing jobs and leaving the profession


Higher wages, better work conditions and pleasant work environment are considered to be the most attractive elements when deciding for emigration and working abroad. Individual motivations shade off the picture described by migration models. Beyond the expected advantages and gains, the decision is often coinciding with personal losses and self-denials. Those working abroad often should take a job different to the one in the home country. Changing the previous job can be promise but loss as well. The article will focus on this particular section of migration, the character and motivations of job change of Hungarians moving abroad.

Journal of Economic Literature (JEL) kódok: C83, J40, J60, J61.

Global crisis, local liquidity?

Analysing the impact of coronavirus pandemic crisis within a multicountry DSGE model with heterogenous banking system based on liquidity demand

Ádám Czelleng

The study discusses the actual and potential economic crisis triggered by the coronavirus epidemic as the function of the banking system’s liquidity. In this paper, we analysed how and to what extent the liquidity conditions of the banking system in the euro area and in Hungary influence the economic effects of the coronavirus epidemic. Results confirm that with the consideration of financial frictions they affect the pace of recovery primary through the investment channel. The negative impact of the crisis is more significant and the recovery path changes slightly if banks are distinguished by their liquidity positions with surpluses and deficits. To address the research questions, a multicountry dynamic model was applied. This approach is new in the Hungarian literature in as much as in the model the effects of the liquidity position of the banking system are identified and quantified in the event of an economic shock. One of the major conclusions is that the steady expansion of the Hungarian banking system’s liquidity, in which both monetary policy and regulation (micro- and macroprudential policy) plays a significant role is a necessary but not sufficient condition for stabilizing the national economy. The effects are asymmetric, i. e. whereas the improvement in the liquidity in the euro area’s banking system hardly contributes to the mitigation of the domestic effects, its deterioration strengthens significantly the negative domestic macroeconomic repercussions. To minimize the effects, targeted and well-timed measures are necessary that can help recovery. They should remain transparent and sustainable (meeting minimum prudential requirements).

JEL Codes: E12; F37; G21; G28.Key words: multicountry DSGE, monetary policy, liquidity, regulation

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Külgazdaság Vol. 1-2/2020

Abstracts of the Articles


Has the crisis been approaching?

Economists all over the world have been long pondering what kind of crisis has been approaching, would it bring economic slowdown or recession – and when.

Other economists have been gauging whether the world is more resistant to global recession than it was in 2008. Again, others have been gathering the characteristic features of the „new norm” or „new normality” and have been hesitating what developments should economic and monetary policies prep for.

Külgazdaság wants to participate in these global discussions. We asked our authors to share their opinion of rears and hopes. They can, of course, concentrate on any aspects of this huge topic.

We wish to follow and forecast even the Hungarian issues. What risks do our authors foresee – global turbulence, bust after the boom, recession etc. – which will close the period of rapid economic growth?

Challenges of deepening free trade in the Southern Mediterranean


The European Union has signed dozens of free trade agreements in the last decade. These free trade agreements contain not just the abolishment of barriers for trade in goods, but they are much broader in their scope, regulating several other issues related to trade. The main aims of these agreements are to increase the competitiveness of the EU and to secure markets and investment opportunities for European firms. In case of neighbouring regions like the Mediterranean, however, the EU has offered so called Deep and Comprehensive Free Trade Agreements. The DCFTAs require a one-sided harmonisation of trade-related areas of the legal system with the EU’s acquis communautaire, which not only makes the partner countries part of the single market, but it should increase their competiveness as well. Additionally, it should decrease the security risk related to these regions for the EU. Though the optimal outcome of the DCFTAs may have positive impacts overall, and may promote the global integration of the Southern Mediterranean region, but currently the risks of these agreements seem to be larger than the opportunities offered.

The legal framework of EU private international law relations with the UK after Brexit

Katalin Raffai

The United Kingdom has left the European Union on the 31st January 2020, after which there will be an 11-month transition period terminating 31 December 2020. This study summarizes it briefly how the future private international law relationship will be changed between the UK and the EU.

Posted in Egyéb

Külgazdaság Vol. 11-12/2019

Abstracts of the Articles

The effect of changes in the terms of trade on gross domestic income, domestic absorption and income convergence. Experiences of member-states of the European Union between 1995 and 2017, with lessons for Hungary


The volume index of GDP reflects the change in real income generated by production, which differs from the change in real domestic income (RGDI) available consumption and investment in case of movements in the terms of trade (ToT). If the ToT improve (the price index of exports is above that of imports), RGDI increases by more than real GDP, permitting higher growth in real domestic expenditure than implied by the change in domestic production itself; a deterioration in the ToT implies the opposite. The study reviews alternative approaches to interpreting and measuring trading gains/losses, i.e., the effect of changes in the ToT on real domestic income. Relying on alternative methods, we quantify the impact of trading gains (losses) on the change in the components of real domestic expenditure, as well as on real income convergence within the EU between 1995 and 2017. The results suggest a close positive association between changes in real domestic expenditure – in particular, household final consumption – and the income-effect of ToT-changes. Since several new member states of the EU achieved significant gains in their ToT, the convergence in terms of per capita real domestic income was steeper than what is indicated by per capita GPP within the EU. Hungary’s convergence is well below its potential in both respects, but the lag behind potential is larger regarding per capita real income than per capita production.

Asian foreign direct investments in Hungary: the diversity of employee relations


Asian foreign direct investments are substantial in Hungary in regional comparison. According to statistics compiled on the basis of the new methodology, the share of FDI from China, India, Japan and Korea exceeds 10 percent of the Hungarian FDI stock. After discussing the Varieties of Capitalism approach underpinning this article, we examine, through interviews with automotive and electronics subsidiaries, how home and host institutions, business and management culture impact the operation of the companies in question, particularly in the area of human resource management.

Our research shows a clear dominance of host country effects in terms of industrial organisations, employee relations and training, but in some areas practices of the home economy are also emerging. The human resource management practices of the subsidiaries evolve as a result of the interaction between the business culture of the home and host countries, both of which are decisive, including the market entry mode and time, so each company has a number of unique features.

Convergence or middle-income trap? Possibilities for European integration of Poland


Poland is a dominant country both in the Central and Eastern European region and in the Visegrad countries. Nevertheless, economical-political opportunities of Poland are limited due to its economic performance, geopolitical location and high dependency on import of foreign resources (for example natural gas, foreign direct investments [FDI]), similarly to other transition economies in the region. Aim of the study is to identify how can Poland join to the core countries of the European Union. In the analysis we provide an overview on the main determining factors of economic development, such as transportation systems, energy security, climate change, small and medium sized enterprises and currency policy. The

actuality of the study is given by the possibility to identify potential economic breakout points for Hungary on the basis of the similarities (former members of the Ostblock, regime change and transition to the market economy) and differences (first of all population and region). The study applies mixed methodology, since analysis of statistical data, national policies, press releases and international literatures are also used.

Abstract of the Article

The legal framework of EU trade relations with the UK after Brexit


The EU and UK negotiators have successfully modified the conditions on Brexit in autumn 2019 in order to pave the way for approval of the withdrawal agreement by the British Parliament. Considering also the results of the general election held in December 2019, it is already undoubted that the UK will leave the EU in line with these conditions up to 31 January 2020. The present paper has a narrower scope and it is focusing on the trade law aspects of these conditions of Brexit. The main aim of this study is to examine, on the one hand, what role the trade law concerns have played in the negotiations, on the other hand, which set of requirements of the withdrawal agreement will govern the EU-UK trade relations after the Brexit. In doing so, the paper scrutinizes the most important trade law provisions, which will be applicable in the transition period, it looks into the specific status of Norther Ireland and discusses also the major principles that will be significant for the future, long term trade relations of the European Union to United Kingdom.

Posted in Egyéb