HUSK projekt (1101/1.2.1/0171)

CrossborderBuilding partnershipEU

Slovak-Hungarian cross-border migration/Slovensko-maďarská pohraničná migrácia
 Project reference number: HUSK 1101/1.2.1/0171

Lead Partner / Vedúci Partner:

Kopint Foundation For Economic Research,  Budapest

CB partner / Cezhraničný partner:

Kempelen Institute

Duration of the project (month) / Dĺţka projektu (vmesiacoch):12

The place of implementation of the project / Miesto fyzickej realizácie projektu: 

Budapest – Komarno, Slovakian-Hungarian cross-border regions
Budapešť – Komarno, slovensko-maďarský pohraničný región

Downloadable PDF files:

Form of application

Major parameters of the project



The content of this webpage does not necessarily represent the official standpoint of the European Union

Contact of the Hungary-Slovakia Cross-border Co-operation Programme 2007-2013: 

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Külgazdaság Vol. 1-2/2016

Inquiry on the prospects and conditions of economic growth

The pace of economic growth, gathering steam after 2012 but decelerating more recently, is shaped by complex and contradictory factors. Our inquiry asks for an assessment of these factors. On the plus side, the improvement in the macroecomonic balance indicators should be mentioned. Several growth-dampening factors can be cited as well, however, like the reduced ability to attract foreign direct investments, the protracted weakness of corporate lending, the tensions generated by tightening labor supply, the multiple structural problems in the economy, the lagging behind of the Hungarian economy in the international competitiveness ranking, or the temporary drop in EU funding.

The external economic environment is fraught with uncertainties as well: no one can tell for sure what is next for the Chinese economy, or how the US – and the global – economy will react to the rate hike cycle launched by the Fed, how drastic the impact of the VW scandal on the German auto industry will be, whether the EU leadership will able to cope with the mounting conflicts, how the EU-Russia relationship will evolve, and how the EU will be affected by the heavy wave of inward migration and the escalation of the Syrian conflict.

So the question is: which way the growth prospects will be pushed by the monetary and economic policy, by the regulation and the institutions, and by the international developments? Will the favourable or the unfavourable influences prevail in shaping the dynamism of the Hungarian economy?

 Geographical and Sectoral Concentration in Czech, Hungarian and Slovak exports


Statistical data display a high level of sectoral and geographical concentration in the exports of three Central European new member states of the European Union: the Czech Republic, Hungary and Slovakia. All the three countries export huge quantities of the products of certain sectors of engineering industries, and the main destination of their exports are the partner countries in the European Union. In this article, we discuss these issues in a comparative perspective, including into the analysis some other Central-Eastern European (CEE) new EU member states and also some other (non-CEE) EU member states. With more thorough examination we find that both kinds of concentration (which are also interrelated) are at lower levels than it appears in foreign trade statistics, and still rather high in international comparison. Concentration has both positive and negative (dangerous) sides.

 What is nationalization good for? Expectations of Hungarian experts


The waves of extending and shrinking public ownership always revive the political and professional debate about their advantages and risks. The paper tries to sketch the experts’ typical views on nationalizations. Based on in-depth interviews and related analyses, we want to reveal the new elements of expectations and argumentations. We conclude that despite the clear conceptual differences, most experts seem to be more permissive and understanding towards the opposite position. This might be partially due to the crisis, having shaken the dominant theoretical and economic policy paradigm, thus undermining the beliefs in a single correct solution.


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Külgazdaság Vol. 11-12/2015

Nationalizations: Hungarian specialty or a new European trend?


The expansion of public ownership after 2008 is a new phenomenon in many developed countries. How can we interpret the Hungarian nationalizations, having been accelerated form 2010 on: as part of a general trend, or as an element of the unique, „unorthodox” Hungarian economic policy? Based on an ongoing research, the paper summarizes the main characteristics of the European nationalizations, and analyses the Hungarian decisions against this background. It shows that starting form a relatively low level, the growth rate of state ownership put the country at the vanguard at European level. Comparing the goals, the sectors concerned, the methods  and  financing of  nationalizations  we  find similar  characteristics,  but also significant modifications. The main difference is that the expansion of public ownership in Hungary might be regarded as an element of changing the model of capitalism rather than a short-term crisis management tool.

Transit or target country? Asian migrants in Hungary


The article presents the Hungarian findings of an international empirical research based on 80 interviews per country with the persons representing the diverse communities of temporary migrants between Asia and Europe.  The article focuses on the results based on the Hungarian semi-structured interviews, conducted with economic migrants from Asian countries to Hungary. An overview will be given on the size, structure and institutional environment of Hungarian migration, followed with the presentation of the reasons, purposes and the success of economic migrants to Hungary based on the interview results. The article concludes with the discussion of the reasons and the consequences of the low level of migration in Hungary

Relations of youth unemployment and labour market flexibility int he EU


One of the greatest problems in the European Union today is high unemployment, including the large proportion of young people who are not in education, employment or training. As a consequence, boosting employment is a top priority for the EU. There is no widely accepted theoretical concept about the methods of increasing youth employment. This paper therefore aims to investigate the effects of labour market flexibility on youth employment (especially for young people under the age of 25) in the EU member states. To reach this goal, we compare the results of two time periods: one immediately prior to the 2008 financial and economic crisis (2005-07) and the years of 2011-13. Our empirical examination led to the conclusion that youth unemployment is usually lower in more flexible labour markets. Before the crisis, member states formed relatively homogeneous groups in the dimensions of labour market flexibility and youth employment, but in the aftermath of the crisis, these groups were broken up and relatively more labour markets became rigid among the EU members.

The survival of the developmental state in globalization: The experiences of South Korea and Singapore


The paper examines the survival of the developmental state from the point view of the social groups. Answering this question it takes the experiences of South Korea and Singapore. According to the conclusions, the survival of the developmental state has been determined by the power sharing between the state and the social groups. It is the globalization process that opens the door for the recovery of the state autonomy what helps the survival of the developmental state. The danger of the globalization has been assuming state intervention as it helps to exploit the possibilities arising by it.

Legal supplement

Sanctions against Russia and Hungary’s particularist policy


In the past years Hungary has conducted a particularist strategy in the European Union from several aspects, meaning that its main strategic priorities diverged from those of the European Union. This particularism manifested in the dynamics of the Hungarian-Russian relations, during which the two countries established a close relationship despite the fact that the EU imposed economic and political sanctions against its Eastern neighbor. This study examines Hungary’s particularist policy focusing on its strategy towards Russia. The theoretical framework for the analysis is provided by the EU’s constitutional principles, which expect a cooperative behaviour from the Member States with the purpose of attaining common EU goals. One of the main conclusions of the study is that the EU permits a certain divergence from its main policy lines, if the Member States have a good reason to do so. However, when common principles or goals are at stake, then the EU is ready to step up, or at least to investigate the case. Moreover, the article concludes that the examined constitutional principles expect a rule-abiding behaviour from the Member Stater, and it is the duty of EU law to enforce this behaviour, and also to provide the boundaries between legitimate and illegitimate Member State conduct.

The Economic Sanctions Imposed by the European Union on Russian Federation and

the Law of the World Trade Organization


The escalation of the crisis in Ukraine reached a tipping point, when the annexation of Crimea by the Russian Federation occurred, and as a result the European Union has shown a greater-than-ever capacity to carry a cohesive foreign policy and triggered a concerted response in the form of a series of restrictive measures labelled “economic sanctions”. Beyond the restrictive economic and commercial measures  against  Russia  and  Crimea,  these  sanctions  cover  also  specific  measures imposed on individuals, and punitive economic diplomacy as well. Since the EU, its Member States and also Russia are members of the World Trade Organization, the real question can be posed how these sanctions can be understood in the light of the WTO law. The present paper intends to analyse these questions, examines the general background of the sanctions, and tries to put it into the context of the WTO law, and it hypothetically considers, how these measures could be justified under the WTO obligations.

 The effectiveness of economic sanctions introduced by the European Union against Russia


The  effectiveness  of  the  economic  sanctions  imposed  by  the  European Union (EU) has been a highly debated issue in the current Ukrainian crisis. This pessimism may be partly explained by the fact that the majority of the analyses tend to overemphasize the economic impacts of these restrictive measures on Europe. Indeed, it may be shocking to see the economic costs of the sanctions applied against Russia. However, this article argues that the political effectiveness of the sanctions cannot be measured by taking (only) the economic impacts of these restrictive measures into consideration. This article claims that once a predetermined foreign policy objective by the literature has been achieved by an actor (in this situation by the EU), any case can be considered effective. Consequently, it is true that the sanctions have not been able to alter Russia’s behaviour, as one would have expected. Nevertheless, by applying sanctions, the EU achieved to deter Russia from “future wrong doing” in Ukraine and it is recognized internationally because it has showed that the Member States could all agree to stick to their core values.

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Külgazdaság Vol. 9-10/2015

Political networks in the European Parliament Network analysis of the 2013 reform of the Common Agricultural Policy


EU-level decision-making has already been analysed from a number of point of views. Nevertheless, social network analysis in the context of the EU’s legislative procedures, particularly in the European Parliament is still limited. The objective of this paper is to analyse the relationships of the Members of the European Parliament during the elaboration of the legislative instruments of the 2013 Common Agricultural Policy reform. Interpersonal networks of EP members have been transformed into networks of EP groups as well as EU Member States. The novelty of this research is the combination of network analysis with the analysis of the legislative amendments of the EP. The results of the analysis show that EU-15 as well as net contributor Member States are more active and cluster together more frequently in the network. Also, Member States with higher economic dependency act together more frequently in the legislative process. Regarding the EP Groups, the most active one is the European People’s Party, while the European Conservatives and Reformists Group play the most important role as intermediary in the network.

Enforcement of Competition Policy in the EU Energy Sector


Three EU directives regulating the internal energy market of the European Union have created the conditions for opening up the market in the energy sector. However, corporate behaviour distorting competition as well as member states’ acts of intervention in the market have hindered in the realisation of opening markets and liberalization. In order to ensure that market liberalization is implemented in accordance with the directives, the European Commission has applied competition policy measures and sought to eliminate specific anti-competitive positions through proceedings and rulings. Prior EU proceedings initiated for the enforcement of competition have been dominated by cases directly affecting the competitive position of companies and concerned the conduct of those companies, their relative market powers and state aid. Exposing distortions to market competition have in recent years been complemented by new considerations – of environmental and climate protection – that do not concern companies’ competitive positions. However, in EU procedures aimed at enforcing competition in the energy sector, adoption of these criteria must be harmonised with the requirement to strengthen the single internal market.

 Scientific cooperation between the European Union and Turkey Advantages and possible synergies


The Turkish economy has shown remarkable economic performance over the last decade. Currently, it is the 18th largest economy in the world. To increase its competitiveness, Turkey set research and development as a priority area for the next decade, with the ambitious goal of reaching 3% of GERD/GDP by 2023. Despite several controversies about the EU accession process in general, Turkey is an active member of the European research area. It is an associated member of the RDI Framework Programs since 2002, it participated in and coordinated various scientific projects, policy-coordination actions, mobility programs and won grants for excellent researchers. In the Turkish national STI strategy for 2011-2016, the three vertical and six horizontal axes consist of various scientific areas like ICT, Energy, Defence, Water, Food, which have been also set as priority areas in the European H2020 program. We would like to focus in our article on possible synergies between priority areas, as well as on the role of SMEs in the innovation chain, which are enjoying a special attention in both Horizon 2020 and in Turkish national science and economic policy.

Budget support in fragile states: anomaly or paradox?


In our previous study (Udvari-Pontet, 2015) we analyzed budget support highlighting the fact that many donors expect the increase of aid effectiveness thanks to this aid modality. However, the use of budget support may associate with high risks especially in recipient countries where good governance, political stability are problematic and the level of corruption is high. Though, many donors – including the European Union – emphasize the relevance of budget support in fragile states where the criteria mentioned above are partially or completely missing. This caveat raises the questions how budget support can be successful in recipient countries which do not meet the minimum conditions of budget support, and what reasons may motivate donors to provide this aid modality. The aim of this study is to analyze the appearance of budget support in fragile states with statistical tools. Based on the results it can be stated that economic and social development and institutional conditions of fragile states do not effect on the volume of budget support in these countries, so it seems that the economic and strategic interests of donors are more decisive.

Legal supplement

Protection of Public and Private Interest in Rome I Regulation –

some Observation about the Interpretation of Overriding Mandatory Rules


Judgment of the Court in Case C‑463/13 Stanley International Betting Ltd, Stanleybet Malta Ltd


This  presentation  of  some  relevant  judgments  of  the  ECJ  shows  how  Italy  had to transform its regulation concerning gambling and how it has established a much more open model based upon concessions instead of the former monopolistic structure conflicting with EU Law. It is worth to highlight the interaction and demonstrate how the Italian regulation has been modified stimulated by the judgments of the ECJ and  how  the  Court  has  reacted  on  these  developments.  As  the  result  of  this  conti- nuously ongoing process it becomes obvious, how these judgments of the ECJ have contributed  to  the  transformation  from  a  monopolistic  structure  to  a  system  based upon  concessions.  The  analyzed  judgment  of  the  Court  is  the  most  recent  element of  this  progress,  the  main  subject  of  which  is  the  limitation  of  the  duration  of  the concession.

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Külgazdaság Vol. 7-8/2015

Quo vadis Rhine capitalism? The future of the German social market economy: chances and dilemmas


In this article, the authors examine the sustainability and possible ways of development  and  transformation  of  the  German  social  market economy  (also known as „Rhine capitalism, or Ordoliberalism) through three main indicator groups. First, the analysis of Germany’s main macroeconomic indicators shows the current economic performance and position of the country. In the second part the authors present a detailed study about the structure and foreign trade relations of German economy. Thirdly by presenting the most important demographic and social indicators the authors are searching the answers about the future chances of Rhine capitalism consider by many as an example of ideal economic model. Thus the article has double purpose: first to give a broad and detailed picture about the characteristics of  German economic system. Secondly, to show the interference between certain economic, monetary and social indicators. The German way of facing the challenges of social market economy is crucially important regarding the future economic prospects of the European Union as well.




Electronics production in Europe: changes after the crisis?



Five new member states of the European Union: the Czech Republic, Estonia, Hungary, Poland and Slovakia have become more and more important players in the European electronics industry. The most important actors here are the local subsidiaries of multinationals, which created new capacities and relocated existing capacities there. The crisis hit hard the industry, and the companies were pressured to look for new ways to increase their competitiveness. The article analyses whether there are new trends in the industry after the crisis and changes in the distribution of labour among EU members. It is shown that the five analysed countries could increase their share in electronics FDI, production and to a smaller extent in value added and decrease slightly their reliance on imported inputs. At the same time, increases in the shares of certain “old” EU member countries were more significant. Thus one of the main conclusions is that the restructuring of European electronics continued or even accelerated during the crisis and took a slightly different direction, and now it reflects to an increasing extent the competitive advantages and disadvantages and differing specialisations of individual EU countries, while labour cost considerations may play a smaller role compared to the pre-crisis period.


Sustainability and growth: The Stern Report and the model of Directed Technical Change



In this article we examine the relationship between sustainability and economic growth starting from the Stern [2006] report. We show that in effect it is the long term discount rate which is in the focus of the academic debate, and we discuss the views of various authors regarding the choice of its proper value. Then we present Acemoglu et al [2012] directed technical change model that provides a generalized framework for the understanding of the debate and for the systemic analysis of the possible answers. An important feature of the model is that innovation is not exogenously given, but it is the most important internal variable. Surprisingly, in this theoretical framework, the discount rate is essentially irrelevant. Finally, we describe the recent developments in the topic, the criticisms concerning the model of directed technical change, which is mainly concerned with the optimal parameter values and the forms of state intervention.




Quantifying the inputs for real options valuation



The value of most companies and projects is significantly increased by the continuous decision making of managers, because it renders business operations flexible compared to the previously fixed plans. Traditional DCF models, however, do not aim to handle this kind of flexibility. These opportunities – real options – are nevertheless worthy of incorporating into the valuation process and a possible way to do it is via the application of financial option valuation methodologies. Beside the familiarity with the theory, this requires quantified inputs, which usually are the current value of the underlying, the strike price, the risk-free interest rate, the time before expiry and the volatility. While these are fairly easily determined for financial options, when it comes to real options, the mere interpretation of these inputs could become equivocal. This paper elaborates on this problem, providing detailed recommendations for both the interpretation and the quantification of these inputs.




EU-Turkey customs union: does the ’Turkish-model’ work?



The customs union between the European Union and Turkey creates a strong, but unstable tie, with asymmetries in the decision-making power of the two sides. Although it had a positive impact on the Turkish economy, recent developments in EU trade policy have questioned the sustainability of the customs union in its current form. The stalemate of the negotiations on a Turkish EU membership raises questions on the possible alternatives. The article analyses the advantages and shortcomings of the EU-Turkey customs union and the lessons of the Turkish-model to be drawn for countries in the neighbourhood. Although the customs union offers economic gains compared to free trade agreements, one-sided adoptation to EU trade policies may become a risky obligation. Still, the Turkish model and the future of EU-Turkey relations have an importance far beyond bilateral relations of the two sides.

Legal supplement

Legal harmonization of the institutions of international customs law


The gradual harmonization of international customs law and the harmonization of certain customs law institutions’ regulation is one of the greatest legal achieve- ments of these days. Legal harmonization can primarily be seen in the harmonization of customs procedures, customs tariffs, rules of origin and the determination of cus- toms’ base. The study presents the legal harmonization characteristics of agreements entered into under the aegis of GATT–WTO Customs Cooperation Council but also discusses legal sources of the European Union formed in this subject. Regarding the harmonization of customs tariffs, the author presents the legal harmonization effects of the Customs Cooperation Council’s nomenclature and the New Harmonised Com- modity Description and Coding System. The determination of rules of origin and the unified rules of customs tariffs’ investigation is also realized with the presentation of the regulations of the GATT–WTO system, followed by the author’s suggestion on the classification of international customs in the legal system.



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Külgazdaság Vol. 5-6/2015

Differences of economic development and ways of cooperation in the Slovak- Hungarian cross border region


The article gives an overview of economic processes in the Slovak-Hungarian border region. The main conclusions are based on the main findings of a Slovak- Hungarian cross border migration project funded by the Hungary-Slovakia Cross Border Cooperation Programme 2007-2013. According to the authors economic and welfare differences between the two sides (Western and Eastern parts) of the Slovak- Hungarian border remained substantial in the post-crisis period. This applies both to the Slovak as to the Hungarian border region. Whilst on the Eastern part Slovak NUTS III regions are more advanced as compared to the Hungarian counties, on the Western half of the border the picture is more differentiated. Losses due to the global crisis could be totally offset in the Western border region part; this was only partially the case in case of the Eastern part of the border. The authors look at the period 2008 to 2013 and give a comprehensive analysis on regional differences based on macro- economic and enterprise data and try to find explanation for the stubborn differences and the slow progress of economic cooperation.

Restraints of competition, unlevel playing fields after full postal liberalization


Recent experiences in the market opening of network industries predict an increasing role of competition policy. Newcomers may compete with incumbents hoping the prohibition of competitive constraints. Postal services as network industries are traditionally bound to economic regulation. The efficient coexistence of competition policy and economic regulation has overriding importance in approving state aids which comply with EU laws. Both the financial health of universal service providers and the gains from increasing competition should be achieved during the regulatory process. The third postal directive restricted the intervention of regulatory agencies to the conditionality of universal services, but they are also strengthened with greater discretionary power.

Regulatory bargain in free market environment: the Budapest taxi market – a case study


 In April 2013, the Assembly of the Budapest Municipality radically transformed the taxi-market in Budapest. This case study analyses the events that led to this decision and also the measure’s immediate impact. The study is part of the research project, titled ‟The Unexpected Consequences and Impacts of the Market Regulation”, financed by the Hungarian Scientific Research Fund. The new rules were aimed to establish “law and order” in the taxi-market, and basically correspond to the main trends applied worldwide – although the municipality failed to do any studies concerning the international developments in this area. It soon became obvious that the trade unions and the employees’ organizations, in their negotiation with the Budapest local Government, (ongoing from 2011) got into a subordinate position, due to their weak legitimacy. The mayor could successfully divide the participating interest groups. The unrealistic new rules had to be modified as soon as two months after their introduction. Even after this modification, the new rules impose uniform tariffs in a market, which previously had been extremely segmented: different tariffs applied to cruising on the street, preordering by phone, or hiring a taxi based on long term agreement. The result of the new rules could surprise the Municipality, if players outside the regulated market increase their share significantly.

Overcoming asymmetric information in venture capital finance


Venture capital investors aim to invest in potentially prosperous companies with high-yielding projects, operating in innovative industries. In return for their investments, they gain share in their portfolio companies. Apart from providing capital, they also contribute with their management expertise and personal network to guarantee the success of the enterprises. Significant value creation can be achieved through the active participation of both the entrepreneur and the investor. In our research we committed to explore mechanisms that facilitate mutual interest and participation of all parties during VC investments. In the first part of the research – based on international literature – we present problems emerging during the investments, namely adverse selection and moral hazard situations, and we also investigate some of the mechanisms used by the parties for problem solving. In the second part of the research, we present the results of interviews conducted with the VC managers of Hungarian VC funds. Some of the findings include the rare use of convertible securities, or the frequent use of staged financing or options connected to certain, predefined conditions or sanctions.

Innovation of Innovations. New Innovation Types in the Global Economy



In the last two decades innovation has undergone cardinal changes: new actors appeared on the scene, the role of innovation appreciated in the economy. In many cases, the innovation process itself takes place in an unusual way as well. Unknown types of innovation (reverse innovation, crowdsourcing, etc.) surface, which could redraw the global innovation map. The authors’ aim is twofold: 1. By presenting the new types of innovation they urge a more detailed examination of these new forms, while seeking answers to whether there is a relationship between the new versions of innovation that are ever increasingly coming to the fore, or they are independent from each other. 2. They also draw attention to that the traditional Schumpeterian or the OECD classifications are needed to be amended in three respects: 1. Capital-intensive and low capital requiring (“barefooted” as called by the authors) innovations should be differentiated according to their resource requirements; 2. Differentiation should be made according to their place of birth within a company or within a network; 3. Also, innovations should be delineated according to global orientation, whether they are born in the developed world and are spreading from there or they are reverse innovations (wholly or partially developing in the less developed economies and spreading from there). When establishing the international rankings, collecting data according to these suggested new classifications would provide a more realistic picture compared to the current approaches.

Legal supplement

The La Poste case (2012) Closer view on widely defined state aid


The state aid regulation has always been a special part of European competition policy. The aim of this article is to present a major CJEU case in order to take a closer look at Member States’ different actions effecting competition, and to highlight the frameworks of a well-built defence system against unjust actions. In this regard, to summarize the findings of the French La Poste case of 2012 seems to be an approp- riate subject. As a result, we will see that the European Commission does not have to prove the existence of state aid with numerical data and economic/business statistics and that every action of a Member State intended to potentially threat the distortion of competition are incompatible with the single European market.






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Külgazdaság Vol. 3-4/2015

Economic Analyses in Spring 2014

Having experienced the last year’s surprise GDP growth, the economic research institutes foresee for 2015 slowdown, temporarily continuing deflation – without hard tensions in the state budget. That’s the common message of the spring forecasts of the various institutions. The press usually informs only about the most important economic data, providing less and less room for the analyses, the detailed studies prepared by the institutions do not reach those who are interested. This is the reason why we have been publishing short summaries of these reports and prognoses since 2001. The recent analyses have been discussing the possible consequences of the economic policy, the path of the gross state debt, how to reach the budget deficit targets and the uncertain prospects of the economic growth and deflation.

 Agricultural trade implications of Hungary’s EU accession




The main objective of this paper is to analyse the impact of European Union (EU) membership on Hungarian agricultural trade with the EU-27 in the period 2003-1013, based on own calculations using the latest statistical data. It was concluded that the agricultural orientation of Hungarian foreign trade and the export orientation of the agricultural sector have strengthened during these 10 years. Hungarian agricultural trade with the EU-27 grew dynamically, with export expansion being accompanied by increasing import penetration. As a result of the three-fold export and import value growth, the EU-27 became the leading market for Hungarian export products (with an 83% share) and the main source of imports (with a 91% share). While the Hungarian export commodity structure is dominated by raw materials and semi-processed goods due to low competitiveness, the import structure is rather diversified, though processed goods oriented. The share of the New Member States has increased to almost 40% in Hungary’s intra-EU agricultural trade at the expense of the EU-15. Following a post-accession deterioration, the balance of Hungary’s agricultural trade with the EU had improved to a record of 2.7 billion euro by 2012.

The effect of return migration on SME Internationalisation: a comparative case study of Hungarian IT sector entrepreneurs


Transition to a market-based economic structure in the post-Communist countries of the Central and Eastern Europe region since the early 1990s has been accompanied by intense IT-driven technological change. Internationalisation opportunities have emerged for IT sector small and medium sized enterprises based on the region’s strong possession of technical skills. Furthermore transition has facilitated outward migration, return migrants who acquire social capital abroad and establish businesses upon return home may positively influence entrepreneurship, organisational human capital and SME internationalisation in the CEE region. This chain of phenomena remains relatively unresearched in a CEE context. A process-oriented qualitative case study approach is used to compare the experience of three IT sector entrepreneurs in Hungary who previously worked and studied abroad. Primarily, the acquisition of social capital from abroad is crucial for re- configuration of organisational human capital at home in order to drive ‘born-global’ SME internationalisation.

 Labour market and labour migration on the Slovak-Hungarian border after the economic crisis


This study presents the project of Kopint Foundation For Economic Research about the migration on the Slovak-Hungarian border. The author introduces that the labour market differences are still significant between two sides of the Slovak-Hungarian cross-border, horizontally and vertically too. The writer of this study points out regarding the labour migration that numbers of the Slovak workers have been declined in a large measure between 2008 and 2013. He represents that number of the Hungarian workers in Slovakia haven’t been became important after the economic crisis.

Legal supplement

Decline of the Principle of Equal Treatment


The  multilateral  regulatory  framework  of  international  trade  driven  by universal inspirations, as created by the GATT and the WTO, was based upon the principle of equal treatment. The ingenious legal implementation technique of this principle, the most favoured nation treatment, invented a long time ago, was not only multilateralized, but also elevated – with some notable exceptions – to be the main rule of the GATT system. As a result of the ever expanding and deepening regulation, as part of the globalization process, the world trade has become more and more liberalized. However, after many decades of successful development, roughly 15 years ago the process came to a standstill, in a way, became the victim of its own success. Among the various economic and political factors one reason of this slowing down was that the principle of equal treatment and its legal technique of implementation progressively lost its importance. The faltering of one of the main pillars of the system inevitably put the whole system at risk. In the first stage the most favoured nation treatment ceased to be the main rule and turned into an exception. Later on the exception, after being applied in an ever widening scope, brought about a new system based upon a wide network of bilateral and regional free trade and preferential agreements. Hence the decline of the original universalism and the fragmentation of the global regulatory framework. It is of utmost importance that the achievements of the multilateral regulation of world trade are preserved, while recognizing the fact that the global system is by far not as uniform and homogenous as it is frequently thought and the economic, political, cultural-civilizational differences – also as reflected in the field of legal rules and regulations – make the world much less flat than it may look like.

Financing problems related to the budgetary system of the European Union


The European Union’s budgetary system, even if it is able to fulfil its primary roles (such as the financing of the common European objectives), entails a lot of handicaps. In recent years, several problems occurred in the functioning of the annual budget, leading to a de facto lack of funds in certain budgetary years. This article gives a short insight into the functioning of the common European budgetary system (with a special emphasis on budgetary flexibility) and presents the nature and the reasons of the deficiencies. We argue that the problems encountered result from the new stipulations of the Lisbon Treaty, the political motivations of the institutions concerned as well as from the broader political and economic context.


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Special Issue of Külgazdaság Volume 1, No. 2/2015

Overcoming Asymmetric Information in Venture Capital Finance

Theoretical approach and evaluation of Hungarian findings


 Venture capital investors aim to invest in potentially prosperous companies with high- yielding projects, operating in innovative industries. In return for their investments, they gain an ownership stake in their portfolio companies. In addition to providing capital, they also contribute their management expertise and personal network to guarantee the success of the enterprises. Significant value creation can be achieved through the active participation of both the entrepreneur and the investor. In the following research we are committed to exploring mechanisms that facilitate mutual interest and participation of all parties during VC investments. The first part of the research – based on international literature – presents problems emerging during the investments, such as adverse selection and moral hazard situations, and also investigates some of the mechanisms used by the parties for problem solving. The second part of the research presents the results of in-depth interviews conducted with some VC managers of Hungarian VC funds. Findings include the rare use of convertible securities, or the frequent use of staged financing or options connected to certain predefined conditions or sanctions. This study was written following the findings and conclusions of the master thesis Sejla Aman [2014]: Information asymmetry in venture finance.*

Journal of Economic Literature (JEL): D82, D86, G23, G24.

Differences of economic development and ways of cooperation in the Slovak-Hungarian cross-border region


The article gives an overview of economic processes in the Slovak-Hungarian border region. The main conclusions are based on the principal findings of a Slovak- Hungarian cross-border migration project funded by the Hungary-Slovakia Cross- Border Cooperation Programme 2007-2013. According to the authors, economic and welfare differences between the two sides (Western and Eastern parts) of the Slovak-Hungarian border have remained substantial in the post-crisis period. This applies to both the Slovak and the Hungarian border regions. Whilst in the Eastern part, Slovak NUTS III regions are more advanced compared to Hungarian counties, in the Western half of the border, the picture is more differentiated. Losses due to the global crisis could be totally offset in the Western border region; this was only partially true for the Eastern part of the border. The authors study the period from 2008 to 2013 and give a comprehensive analysis on regional differences based on macroeconomic and enterprise data and try to find an explanation for the persistent differences and for the slow progress of economic cooperation.*

Journal of Economic Literature (JEL) code: E01, E66.

Anti-competitive practices, unlevel playing field after the full opening of the postal market


The experiences of full market opening of network services have so far shown an increasing role of competition regulation. The new entrants, trusting in the prohibition of competition restrictions, are trying to compete with incumbent service providers. On the field of postal services as a network service, however, the traditional form of regulation is sectoral regulation. The effective cooperation of the two regulatory regimes is especially important in order to evaluate state aid in line with EU principles. In the course of the regulation both the universal service provider’s financial balance and the gains expected from increased competition must be secured at the same time. The third postal directive restricted the possibility of sectoral regulatory intervention to ensure a universal service, at the same time providing a wider decision-making authority to the regulators in this respect.*

Jour nal of Economic Literature (JEL) kód: K 23, L51, L87.

Enforcement of competition in the energy sector of the European Union


Three  EU  directives  regulating  the  internal  energy  market  of  the  European Union have created the conditions for opening up the market in the energy sector. However, the opening up and liberalization of the market was hindered by the positions and conduct of incumbent companies as well as by acts of intervention in the market by member states, distorting competition. In order to ensure that market  liberalization  is implemented  in  accordance  with  the  directives,  the European Commission has applied competition policy measures and sought to eliminate specific anti-competitive positions through proceedings and rulings. Prior EU procedures initiated for the enforcement of competition were dominated by cases directly affecting the competitive position of companies on the market, and concerned the conduct of those companies, their relative market powers and state aid. Exposing distortions to competition has in recent years been complemented by some new considerations – namely environmental and climate protection – that do not concern the competitive positions of companies. However, in EU procedures aimed at enforcing competition in the energy sector, adoption of these criteria must be harmonised with the requirement of strengthening the single internal market.*

Journal of Economic Literature (JEL) codes: D21, L12, L4.

Legal supplement

Protection of Public and Private Interests in the Rome I Regulation – Observations on the Interpretation of Overriding Mandatory Provisions


This article deals with the role of overriding mandatory provisions in European private international law. It highlights the contradictions inherent in the concept and substance of the legal construct and the difficulties of application. The starting point for definition is the Rome I Regulation, whereas particulars of substance are presented using two closely related decisions (Ingmar and Unamar) of the Court of Justice of the European Union (CJEU) as well as an on-going German case.*

Journal of Economic Literature (JEL) code: K39 – Other Substantive Areas of Law.

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Special Issue of Külgazdaság Vol. 1, No. 1/2015

Through a Glass Darkly The Content of Statistical Data on Foreign Direct Investment


 With the advancement of globalization, the role of foreign direct investment has grown rapidly both in the global economy and in individual national economies. As such, their analysis is unavoidable when examining practically any economic phenomenon. The main data source used for this purpose is that on foreign direct investment found in the balance of payments. However, the purpose of a balance of payments is to record how and in what form a country executes various financial transactions with the rest of the world. Thus, such data on direct investment does not necessarily correspond fully to the direct investment content of economic analysis. During the crisis, the increase in the use of transactions aimed at loss reduction and tax optimization by multinational companies has resulted in an even greater gap between the data and the phenomenon being analysed. Therefore the authors would like to emphasize that one needs to be very circumspect when analysing such data.*

Journal of Economic Literature (JEL) code: F21, C80.

Squaring the Circle? Government as Venture Capital Investor


 The government participates in the venture capital market in many different ways. This paper examines the role of the state as an investor and gives a thorough review of international trends through examples. It outlines, that contrary to direct participation that could result in the distortion of market processes, the government is increasingly contributing to the growth of venture capital market funds while including the private sector in the process. The inclusion of the private sector is important primarily because this solution ensures the selection of projects that are economically viable, promising and free from political influence, the selection of financing periods independent from election times, and the adequate expertise and  incentives of  managers  entrusted  with  the  investment’s management.  The main conclusion of the study is that only privately managed venture capital funds financed only to a lesser extent by the state allow for the adequate utilization of state resources, and thus they contribute to the achievement of economic policy objectives and improve the capital supply of young, promising companies.*

Journal of Economic Literature (JEL) code: G23, G24, G28, M13, O31.

Macroprudential Paradigm Shift in Hungarian Bank Regulation


 Within the framework of the global macroprudential paradigm shift, which directs regulators’ attention on systemic risks, governments that had to intervene during the financial crisis to maintain financial stability now require banks to comply with more and stricter rules. The new paradigm significantly increases the powers of state institutions over the banking industry. This article analyses the distinctive aspects of the international paradigm shift in bank regulation as observed in Hungary in light of the changes in bank regulation and the institutional framework of bank supervision between 2008 and 2013. Its main findings are as follows: (1) the 2008 agreement between the Hungarian government and the IMF played an important role in the paradigm shift, (2) regulations enacted within the framework of the new paradigm strengthened Hungarian state institutions vis-à-vis the banking sector, (3) the opposition of the banks to the changes in Hungary is attributable to the inherent quality of the new paradigm: it raises the cost of banking. The analysis does not provide a conclusive answer to the theoretical question of whether the banking sector gains in stability with the implementation of the macroprudential paradigm.*

Journal of Economic Literature (JEL) code: G 280, G 010, F 590.

Competitiveness and Internationalisation in the Hungarian Small Business Sector in the 2010s


 Many see the resurrection of the Hungarian economy, torn by the world economic crisis, in the acceleration of exports and, more generally, in the increasing internationalisation of domestic businesses. The government’s new foreign economic policy strategy, still only released in draft form, expresses ambitious goals; among others a six-fold expansion of businesses capable of export. This article uses data from a survey concluded in 2013 assessing 799 small businesses to analyse the tendencies towards internationalisation of Hungarian small businesses in the context of competitiveness. According to our observations, the ten pillars of competitiveness are closely connected to one another; the consonance of pillars is more important than achieving outstanding results in the case of any single one. Therefore we examine internationalisation not merely on its own but in conjunction with the nine other pillars constituting competitiveness. We evaluate the internationalisation and export potential of Hungarian small businesses through the comparative analysis of eight groups we created using cluster analysis. As expected, the most internationally active businesses also proved to be the most competitive. However, we found numerous businesses with low levels of competitiveness that – in contrast to the convictions of any internationalisation theory – were engaging in tangible export activities. Despite the presence today of several thousand exporting and export- capable small businesses in the Hungarian economy, we do not believe it likely that this number could grow drastically in a short period of time.*

Journal of Economic Literature (JEL) code: F 23, L 25.

Legal supplement

Decline of the Principle of Equal Treatment in the Global Economy


 The framework of international trade that regulates towards multilateral agreements and universality, as created by the GATT and the WTO, was based upon the principle of equal treatment. The technique for the legal implementation of this principle is the most favored nation treatment (invented a long time ago), was not only made multilateral, but also elevated – albeit with some exceptions – to be a general rule of GATT. Over the decades the regulation has been continually expanding and gaining depth and has become increasingly free as a part of the globalization process. However, about fifteen years ago this development came to a standstill becoming a victim of its own success. Besides numerous economic and political factors one reason for this slowing down was that the principle of equal treatment and the technique for its legal implementation became increasingly subordinate. Since one of the main pillars of the system was weakened, the whole system was put at risk. At first the most favored nation treatment became an exception instead of a fundamental principle. Then the exception was applied in an ever-widening scope, which created a new system based upon a wide network of bilateral and regional free trade and preferential agreements. This caused the deterioration of the originally intended universalism and the very fragmentation of the global regulatory framework. The achievements of the multilateral regulation of world trade must be preserved, while recognizing the fact that the global system is far less uniform and homogenous than is frequently believed and that the economic, political, cultural and civilizational differences demonstrate even in the field of legal rules and regulations that the world is not as flat as it may appear.*

Journal of Economic Literature (JEL) code: F13 – Trade Policy; International Trade Organizations.

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Külgazdaság Vol. 1-2/2015

Inquiry on the changing structure of the Hungarian economy and of the financial system

The changes of the world economy in the aftermath of the 2008 crisis and the Hungarian economic policy’s newly framed priorities after 2010 – concerning the desired structure of the Hungarian economy – put questions concerning the structural transformation of the Hungarian economy and new needs related to financial intermediation in the limelight.

Our inquiry in 2015 seeks answer to the following issues:

How far do structural changes either occurring spontaneously or as a result of the changing state regulation comply with international trends and within those with processes taking place in countries in similar conditions? Put differently: how much are the reorientations of the Hungarian economic policy are in accordance with the structural changes observable in the world economy and what risks can the unfolding of these reorientations entail?

After the crisis there appeared a worldwide need for a more secure and more stable financial intermediation and a more stringent supervision. How far do the top-down changes in Hungary directed by the state satisfy these criteria?

Our question is also related to issues concerning the structure of the Hungarian economy such as the observable trends in the sectoral, employment, consumption, import and export structures and the targeted reduction of the weight of services in the economy. As far as financial intermediation is concerned, we are curious how much the state interference with market and property relations, the merging of the central bank with financial supervision, and the development of new reorganization regulation support financial stability and economic growth. Lastly, to what extent can the changes in the structure of the Hungarian economy and of the Hungarian financial system contribute to the mitigation of the problems of employment, growth, competitiveness and financial balances?

The Role of Expectations in the Success of Bailout Programs: Crisis Management in Greece and Ireland


 In the context of the debate on the effects of fiscal austerity on growth the paper aims to explain the role of expectations in the emergence of austerity cycles during financial bailouts. It argues from a political economy perspective that the conditions, their implementation and market reception are forms of a social dilemma. In such situations expectations about the actions of other actors approximated by the concepts of trust or distrust play a critical role. An environment of trust among major actors is conducive to mitigating the size and effects of fiscal contraction, while an environment of distrust is likely to magnify both. It is also argued that the credibility of government is the key driving force in these self-reinforcing cycles. The crisis management experiences of Greece and Ireland serve to illustrate the theoretical model.

European integration and economic growth Factor market integration, growth effects and European growth model


As regards the medium term growth effects, the induced physical capital formation should be stressed. European integration improves the efficiency of production factor combinations used in the production of the output. Due to the increased efficiency Europe becomes more attractive for investors, investments increase. As a result of this process, the initial efficiency surplus of the integration is strengthened by the induced physical capital formation too. The medium term growth effect lasts until capital formation is above the average. As the capital per worker ratio increases in the neoclassical growth theory, the benefit from an additional capital investment decreases. Above the average capital formation continues until the marginal product of an additional unit of capital equals the its marginal cost. This effects prevails therefore only in the medium term as it gradually cease to exist. (This kind of investment boom characterized Spain at the time of its EU accession.) Long term growth effects result in a permanent change of the accumulation ratio. As the accumulation of the physical capital follows the law of diminishing returns, long term growth effects can mainly attributed to knowledge accumulation, e.g.: to technological development. In case of medium term growth effects the per capita output stabilizes at a new, higher level. In case of long term effects however, there is a permanent change in the rate of growth. The latest growth theories suggest that the integration insures a permanently higher rate of growth relative to the case without integration.

 Budget support: towards a more effective aid (?)


Recently, there have been changes in international development cooperation, beyond the growing role of emerging donors new types of aid – for example, budget support – occur besides traditional project aid. Several donors and the relevant literature expect that budget support may increase aid effectiveness. The European Union is among the donors which appreciate budget support, its role appears in guidelines and statements. Despite these facts, the Hungarian literature does not deal with the potential effects of budget support. Present article aims to give an overall picture of budget support, introduce its advantages and disadvantages, and present the main tendencies from the point of view of recipients. We intend to use a general approach, so our aim is not to analyse an independent donor’s or recipients’ activity.

Legal supplement

Concept of reasonable accommodation and its economic nexus


Reasonable accommodation or reasonable adjustment, as main tool combatting discrimination based on disability is a changing concept, similarly to the definition of disability. In the frame of the European Union, reasonable accommodation is ex- pressed in the context of labor law, and also in the field of employment and occupa- tion. The Court of Justice of the European Union has fulfilled its task to interpret it, like in the case of Coleman, Chacon Navas, Z., HK Danmark and Kaltoft. With giving a broader meaning of disability and more concrete solutions of reasonable ac- commodation, I have the vision of an automatic system, where employers are aware of their social responsibility to eliminate all barriers, both physical and attitudinal ones, where the group of people with disabilities will be more respected and more valued.

 EU vs. WTO

Irreconcilable conflicts or winds of change?


 The main purpose of the present article is to make a description about what kind of practices of refusal have been introduced by the European Union in connec- tion with the rights of WTO. In most cases, the procedures of the EU’s are depicted through related legal cases. The main goal of examining these cases is to present and unfold the underlying problems of refusing legal practices which over the course of time became insensitive to change. This „approach” has been the reason of in- tensive debates over decades, which began with the foundation of GATT, and has resulted in a long chain of reactions whose influence can be still sensed up until today. It is essential to highlight that trivial fact that, not surprisingly, in the field of world trade, the main leading role is casted to those states which obtain a more significant economic potential. Since this article has been written in the ’old continent’, the conclusions drawn from legal cases and the resulting problems concerned are discussed in relation to the European Union accordingly. As a conclusion, it is stated that the viewpoint of the approach mentioned above makes impossible the vindication of individual rights. This disadvantage is caused by countermoves initi- ated against individuals and due to refusing practices of the EU. A solution to these problems proposed could be that if the EU, besides placing its interest forward, took into consideration the interests of individuals and, in the light of these, reconsidered its attitude towards the rights of WTO.


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