Külgazdaság Vol. 11-12/2014

Foreign direct investments of domestic firms: emerging Hungarian multinational companies


 Hungary is among the leading outward investors of the new member countries of the European Union. This article, which presents the first results of a research project, tries to show what those factors are which enabled Hungarian companies to expand abroad successfully. Our methodology is based on company case studies of large and smaller-sized investor firms. According to our results, the special ownership advantages of privatsed companies are rooted int he pre-transition period int he first phase of their international expansion, in later phases however, the management changed these succesfully. The ownership advantages of those companies, which were established after 1990 are more similar to those of „traditional” multinational companies. Furthermore, we made a link between the special ownership advantages and virtual indirect investors, through showing that the strong position, knowledge and experience of the management is shaping and modifying constantly these specific ownership advantages.

Critical Success Factors of Export Excellence and its Policy Implications. The Case of Hungarian Small and Medium Sized Enterprises


The slow economic growth rates in the European Union raise the question how the internationalization of small and medium sized enterprises (SMEs) as a possible engine of economic growth, can be facilitated by national economic policies. Research evidences in International Business suggest that the enterprise competencies are critical in internationalization. It is a proposition, that economic policies should facilitate the development of adequate competencies with SMEs. 10 case studies on exporting Hungarian majority owned SMEs were analyzed to explore their critical success factors (CSFs). The paper contrasts the enterprise levelfindings with economic policies towards internationalization by the findings of a qualitative research.

Competitiveness and internationalization in the Hungarian small business sector in the 2010s


 There are many experts and politicians consider internationalization and increased export the way to improve the Hungarian economic growth perspectives. As a part of the new foreign economic policy strategy, the government reelected has come up with very ambitious goals as the six-fold increase of the number of exportable businesses. This study, based on a survey containing 799 small businesses, analyses  the  internationalization tendencies of  the  Hungarian  small  businesses from the competitiveness perspective. According to our view, the harmonization of the ten competitiveness pillars is more important than having an extremely good performance in one or two pillars. As a consequence, we can examine internationalization in relation with the other nine pillars of competitiveness. We evaluate the internationalization of the Hungarian small businesses by comparing eight clusters. According to our initial expectations, the most internationalized business group firms are also the most competitive ones. However, we have found several businesses with low competitiveness points that were active in export. This finding contradicts to any internationalization theories. Despite, that there are many small businesses in the Hungarian economy that are able to engage in export and internationalization the drastic increase of the number of exporting small businesses is not likely at least not in a short run.

 Key factors of Hungarian companies’ internationalisation


International activities are closely linked to strong corporate performance, growth orientation and innovation activities. Even if it is not clear whether these factors are the conditions or the results of internationalisation, it is essential to encourage companies to enter foreign markets. Since foreign market entry modes are of various complexities, they require different readiness from enterprises but also promise different level of success. The present paper analyses the companies’ choice about the mode and time of foreign entry. To highlight this decision, beyond the objective firm characteristics (company size, field of activity, ownership structure), the effects of corporate resources for internationalisation, attitudes of owner/ entrepreneur/manager to internationalisation and the characteristics of the business industry will also be analysed. The findings make it possible to identify the possible fields where companies need to be supported to enhance their commitments toward higher value added international activities and to accelerate internationalisation.

Legal supplement

Rethinking the trade obstacles aiming animal welfare in the WTO


 The disputes between the European Union, and Canada, as well as Norway over  the  justification  of  EU  seal  products  ban  can  be  deemed  one  of  the  most significant  case  before  the  World  Trade  Organization  among  the  disputes  of  this year.  The  Appellate  Body’s  decision,  which  was  announced  in  summer  2014,  has specified the public morality exception of Article XX (a) GATT, shading more light on the requirements, which the Member States should meet if they are introducing restrictive  trade  measures  justified  by  some  ethical  reasons.  The  recent  decision helps  the  Member  States  apply  the  Article  XX  GATT  and  add  new  environmental components  to  the  scope  of  the  Article,  therefore  domestic  trade  regulations  on prohibition on inhumane treatment of animals, or cruel hunting methods come to be justified under the concept of public morality.

 The Private International Law Aspects Of Citizenship


The   Office   of   Immigration   and   Nationality   and   the   Institute   for   Legal Studies  CSS  of  the  Hungarian  Academy  of  Sciences  (with  the  support  of  the Hungarian  Association  of  Police  Science  and  the  National  University  of  Public Service)  held  a  conference  about  the  scientific  questions  related  to  conflict-of-laws rules on citizenship on 9 November 2014. Several scholars and practitioners talked about the different aspects of nationality, including procedural law, family law and successional law  aspects  of  the  principle.  Since  the  lectures  covered  a  wide  range of  topics  and  slowly  but  surely  the  present  domestic  rules  of  private  international law must get revised, it seems to be useful to summarize the main statements of the lectures.

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Külgazdaság Vol. 9-10/2014

Squaring the circle? Government as venture capital investor


Governments play several roles in the venture capital market. Based on empirical examples, the current paper focuses on the role of the government as a venture capital investor. Compared to the direct involvement of governments in investments entailing risks of market distortion, the paper demonstrates that governments increasingly contribute to the funds of the venture capital market in an indirect way: by encouraging private investors to participate. The involvement of private investors in government schemes could serve as a guarantee to select commercially viable projects without any political pressure, to schedule the financing of programs independently from election cycles, and to encourage experienced fund managers to participate in government programs. The main conclusion of the paper is that only those government-funded venture capital funds could ensure the proper utilization of public resources that are managed by the private sphere and are funded mostly by private investors. This would also contribute to economic policy objectives, such as improving the supply of capital for promising young companies.

In the squeeze of demand and supply Performance of the private equity market in Central and Eastern Europe since the beginning of the crisis


 The level of development of the Central and Eastern European private equity market lagged behind the European average due to various supply and demand side reasons. Since the beginning of the crisis the region has lost from its importance for the investors, and the government agency could have filled this gap only partially. On the corporate side, the low level of investment readiness and openness to external investors are the two main obstacles of the development of the private equity market in the region. The determinants of the demand to employ external equity was analysed by binary logistic regression among Central and Eastern European micro, small and medium size enterprises. Data was derived from the European Commission Access to Finance survey conducted in 2013. According to our results the firms’ expectation about the equity supply proved to be the most important factor. The empirical analysis confirmed the existence of contraselection as well. Besides that, companies with improving credit history are more likely to plan to raise external equity.

Demographic transition, pension reforms and labor supply in the Auerbach– Kotlikoff models


 As in many countries in the developed world, demographic transition will impose a major impact onto the social security pension system and the macroeconomcy in Hungary. In the article I introduce the overlapping cohorts Auerbach–Kotlikoff- type models which are less frequently used in the domestic pension modelling. The models take into account the behaviorial and general equilibrium consequences of the demographic processes and the pension reforms along the simulation of the dmographic transition. Because of the primary importance of the relationship between the employment and the pension system, I highlight how the labor supply decision can be incorporated into the models.

Legal supplement

The history of the UN Security Council sanctions regarding North Korea


The nuclear research and weapons program of the Democratic People’s Republic of Korea (North Korea) began with the paramount support of its biggest ally and sponsor, the Soviet Union, during the Cold War in the 1960’s. Within just a few years the socialist state of the Korean Peninsula had several nuclear reactors at its disposal, and also because of feeling threatened by the successful experimental nuclear deto- nation by China, advanced on to uranium enrichment, plutonium production and the designing of the nuclear payload delivery systems. In 1985, North Korea signed the Nuclear Non-Proliferation Treaty, however never complied with the obligations writ- ten in the contract and, in 2003, North Korea left the group of Signatories. The sud- den collapse of the Soviet Union had a devastating effect on Pyongyang, and as since felt the need to ensure its protection and survival from all global threats. Of course, there are other more complex reasons behind the war rhetoric of this refractory state as related to UN sanctions, which the present study will explain in a more detail.

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Külgazdaság Vol. 7-8/2014

The birth of the entrepreneur – episodes from the history of Schumpeter’s concept


The entrepreneur is an elusive and ambiguous concept in economics. She is the key decision maker of capitalism based on private ownership and she provides the dynamic change through innovation. Despite of her vital role, modern economic theory mostly ignored the entrepreneur so she has become the missing protagonist of the neoclassical microeconomic discourse. The most influential conceptualization of entrepreneurship was designed by Schumpeter in 1912, synthetizing many different ideas suggested earlier by English, French and German economists. My essay gives an overview of some of these notions, illustrating the thesis that the importance of the Schumpeterian concept came not from the originality of his proposal but rather from casting the entrepreneur as the main agent of economic development. The idea of technological and organizational innovation initiated by the entrepreneur has recently regained the attention of economists and historians.

 Through a Glass Darkly The content of the statistical data on foreign direct investments


 Together with globalisation, the role of foreign direct investments has been growing rapidly in the world economy as well as in individual countries. Thus their analysis is basically unavoidable when an economic phenomenon is investigated. As the main data source, the direct investment data of the balance of payments are used. However, the main aim of the balance of payments is to show how and in which form the foreign financing of an economy is realised. Thus its direct investment data do not necessarily correspond to the foreign direct investment concept of economic analysis. During the crisis, due to the reinforced tax-optimisation and loss-reducing transactions of multinational companies, the distance between the data and the analysed phenomenon has been further growing. That is why the main conclusion of our article is that one has to analyse the available data very carefully.

Expected impact of US-EU trade negotiations on the Hungarian economic growth


It is an economics assumption about the Trans-Atlantic Trade and Investment Partnership (TTIP) under formation since the beginning of 2013, that it has growth impacts on the participants. Our study estimates the additional effects of TTIP on growth, employment and investment in case of Hungary. Our calculations are built on computable general equilibrium (CGE) models based on price elasticity and trade elasticity. As far it was possible, the impacts were examined by sectors. Our results are compared with previous research results.

 Reindustrialization and its effects – Investigation into long-run structural change via a multi-sector macroeconomic model


In the wake of the recent global crisis reindustrialization became a possible economic policy target both in the European Union and in Hungary. In this paper the authors, using a long-run macroeconomic forecasting model, search for clues of “natural” reindustrializing tendencies in Hungary. One of their conclusion is that reindustrialization is probably forthcoming, but it will be accompanied by modest rates of growth. It seems unlikely that average GDP growth will exceed 3% per annum in the next 12 years, even if very optimistic conditions concerning export demand would materialize. They examine the aggregate impact of two specific “anti-industrializing” scenarios: in the first one consumption, and, in the second, exports shift relatively towards the service sectors. In both of these hypothetical cases growth and employment would be higher than in the baseline case, thus the final conclusion of the paper is that active reindustrialization may not be the most efficient policy option.

 Legal supplement

 Analysis of Directive 2011/24/EU on the application of patients’ rights in cross- border healthcare


Besides providing an in-depth analysis of Directive 2011/24/EU on the appli- cation of patients’ rights in cross-border healthcare, the present Study intends to answer the question whether the Directive is just a mere codification of the related CJEU case-law in the field of European patient mobility, or rather a significant con- tribution to the attainment of the “idea of Social Europe”. The authors argue that the Directive meets the primary objective of creating a transparent and clear regulation for the reimbursement of health care costs in a Member State other than where the care was provided, laying down significant procedural guarantees for the substantive conditions of applications for prior authorisation. It is further argued that the Direc- tive, parallel to codifying the case-law, reinforces Member States’ national compe- tencies by empowering them to determine both the list of benefits subject to prior authorisation and the list of benefits that are subject to reimbursement. Moreover, the co-operation between Member States in the fields mentioned above operates on a highly voluntary basis. On the whole, we may conclude that the Directive has achieved a good balance between competing interests at the time of its adoption, potentially leading to the creation of a more integrated European health policy in the near future.



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Külgazdaság Vol. 5-6/2014

Economic instability and regional falling behind – Hungary’s case


Since the early 2000s Hungary’s economy has been characterised by larger macroeconomic instability than that of the other three Visegrád countries, which contributed to the disappointing economic growth performance of Hungary. Instability has manifested itself in large external and internal imbalances – leading to unsustainable increases in external and public debt –, high inflation and pro-cyclical fiscal policy. The inevitable policy measures aimed at correcting macroeconomic imbalances have led to a fall/stagnation in consumption, investments and productivity, hindering the convergence of the Hungarian economy to the more developed part of the European Union.

 The European Single Supervisory Mechanism


 The European Parliament accepted the proposal of European Committee regarding Single Supervisory Mechanism in 2013 which brings significant changes in supervision of European banks from November 2014.   It is the first pillar of the Banking Union. Participation in the system is compulsory for each Euro zone country, but other EU members also can join the system. Large banks over certain total assets will directly supervised by European Central Bank.   Besides, the 3 most significant banks of each participating country will also directly supervised by ECB. Other banks remain under supervision of sovereigns but under indirect supervision of European Central Bank.The article deals with the operation of the bank supervisory mechanism, the rights and responsibilities of the participating countries and European Central Bank. Also, the article deals with the pros and cons of joining the Single Supervisory Mechanism.

 Crisis Management and Rise of Euroscepticism in Hungary and in the EU Causes, Schemes, Consequences


 A manifold crisis has unfolded in the recent years in the EU. If a crisis erupts, there also is a crisis consciousness among economic and political decision-makers and population. After having discussed the theoretical framework of elite’s and population’s perceptions and its link with public decision-making, this study elaborates on the crisis response of the EU, and how these policies are perceived by the population. What does the image about the EU depend on, and what is at stake if the perception about the EU is changing? Will the EU remain an “economic giant” and a “political dwarf ” after this crisis as it was before it? Where has the evil of euroscepticism nestled – into politics and/or into economy? The current analysis focuses on the new, Central and Eastern European members of the EU, primarily Hungary, and, secondly, on Poland. How is it possible that Hungary which happened to be an “eminent pupil” in the first decade after the change of regime fully supporting European integration, nowadays is falling behind not only the EU mainstream but also the CEE region? What are the political and economic reasons behind the rise of Hungarian euroscepticism? And what kind of interaction has been taking place between the assessment of the EU and the perception of economic situation? Do the hard facts reflect the population’s perception on the economy?

The socio-economic impacts of short food supply chains: a review


 Recent decades have seen an increasing interest in the analyses of local food and short food supply chains (SFSCs). The aim of this paper is to review the relevant academic literature to understand their potential socio-economic impacts. First, problems of conceptualisation related to the definition of SFSCs are investigated; then, the socio-economic impacts perceived by consumers and producers are characterized; and finally, the rural development potential is discussed. According to the results, it is hardly possible to provide evidence on SFSCs as effective policy tools in rural development, because of the context dependence of their socio- economic impacts. Still, we conclude that SFSCs seem to offer a way to increase social cohesion, to generate consumer demand for healthy food as well as to halt the depopulation of rural areas.

Legal supplement

Convention on International Sale of Goods


As sales contracts are the basis of international commerce, the codification and/or recodifycation of these legal institutions are not only crucial for legal advisors but for those who work in the international export business. The purpose of this article is the new Civil Code of Hungary coming to effect on 15th March 2014, which indicates changes in the whole civil law system. It is current and reasonable to investigate the connections of rules of the new Hungarian regime with the most commonly used international source, the Convention on  International  Sales  of  Goods  (CISG).  The study deals with the question of breach of contract, especially the fundamental breach, and the consequences of the breach in both texts, and the relevant international jurisdiction on this field. As a finding we can say it is very welcomed that the new general provisions of contract law in Hungary became much familiar to the international sources including CIGS, which will for sure facilitate to act in compliance with regulation for the parties of international trade.

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Külgazdaság Vol. 3-4/2014

Economic Analyses in Spring 2014

In springtime every year economic research institutes and other institutions publish their analysis about the performance of the previous year, as well as their forecasts. The press  usually informs only  about  the  most important economic data and about the analysis in a few words, the detailed studies prepared by the institutions do not reach those who are interested. This is the reason why since 2001 we have been publishing short summaries of the reports and prognoses made by research institutes. These analyses sum up the consequences of the economic policy, the tensions concerning the fiscal adjustments and structural reforms, the uncertain prospects of economic growth.

 Macroprudential Paradigm Shift in Hungarian Banking Regulation


 Within the framework of macroprudential paradigm shift – which focuses on systemic risks to maintain financial stability – governments that had to intervene during the financial crisis now require banks to comply with more and stricter rules which makes banking more expensive. The new paradigm also empowers state institutions vis-à-vis the banking industry. The article analyzes the Hungarian case of the international paradigm shift in banking regulation in relation to changes in regulation and the institutional framework of 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 in the framework of the new paradigm made the Hungarian state institutions more powerful vis-à-vis the banking sector, (3) banks in Hungary were critical of changes due to one of the new paradigm’s inherent quality, namely that it makes banking more costly. Finally, solely on the basis of this analysis the theoretical question whether banking becomes more stable with the implementation of the macroprudential paradigm may not be answered definitely.

Role of Aid for Trade in enhancing the intra-trade of ECOWAS


The Aid for Trade initiative has become one of the facilities of international development cooperation since 2005. Its objective is to improve the developing countries’ participation in world trade through developing the supply-side capacity in these countries. Since its launch, several analysis were born proving the positive impacts of Aid for Trade, however, it is not investigated – as far as we know – whether the Af T assistance may increase the trade within an economic integration. Thus, current study analyses whether Af T has contributed to the increase of the ECOWAS intra-trade, if yes, in what extent. The research is based on gravity model. Our results show that the Af T has a negative impact on the intra-trade of ECOWAS, meaning that the Af T may have trade diversion effect in certain integrations.

 Legal supplement

Contractual modification – change of circumstances under the new hungarian Civil Code and the Proposal of the Common European Sales Law (CESL)


As long as the European Union strives to find new ways in unification in the field of contract law, the hungarian legislation had proceeded too, in the last few years, and achieved a comprehensive legal work: the new hungarian Civil Code. This study analyses and tries revealing the connection between the newest legal instruments of the European Union and Hungary, as a Member State, through the regulation of modifying of contracts because of change of circumstances (clausula rebus sic stantibus). The foreground and antecedents of this legal institution are taken into account, as well as principles and rules of the substantive law of contract, recognised interna- tionally or in the European Union. Nevertheless, the main line of the study is about the comparison between the Commission’s Proposal of the Common European Sales Law, and the new hungarian Civil Code.


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Külgazdaság Vol. 1-2/2014

Inquiry on the economic role of the state

In the past three-and-a half years the character and boundaries of the state’s economic role has been radically altered by extending its influence. The state as owner and regulator has itself changed: the system of checks and balances has stopped operating. The systemic changes include the followings: The state exercise preferential (or non-preferential) treatment of particular economic branches (or products and services) and groups of asset owners. State ownership has been increased and the influence of the state has been extended towards new economic fields. Decentralized decision-making centres have been eliminated while decision- making competencies have been centralized. A novelty is the alteration of the institutional framework of regulation (the limitation of the power of regulatory bodies); the frequent revisions of the constitutional role of the state, mostly in the direction of extension; the broadening state regulation of prices, as well as – for instance in the financial sector and with respect to public utilities – the deviation of regulations from the norms of market economies.

 Based on this, our questions are the following:

 1. What specific problems can one identify with respect to the governmental, owner and regulatory role of the state in the 1990–2000s, and what additional difficulties have been encountered as results of the post-2008 global economic developments? While answering this question, one does not have to focus on the most recent developments.

2. What solutions can be proposed to address these problems, similar or dissimilar to the ones being applied? In other words, in which specific fields the rethinking (and the redefinition) of the role of the state is justified and unjustified?

Reorientation of the Hungarian monetary policy


To cushion the impact of the crisis leading central banks pumped large amounts of money into their economies. At first only cautiously to relieve the shortage of liquidity and to restore financial stability, later more and more to stimulate the economy and to increase employment. With a moderate tendency of spending money creation did not threaten with inflation, so central banks reaching zero interest rate applied unconventional monetary easing methods. The renewed leadership of the National Bank of Hungary from the spring of 2013 tries to stimulate economic growth by using similar monetary policy methods. The long term effects of these unconventional means can not be forseen clearly even in developed countries, and even more difficult to assess the effectiveness and risk of them in Hungary, where the economic situation is different in many ways.

  European economic research institutes about year 2014


The Association of European Conjuncture Institutes (AIECE) publishes two reports in each year regarding the European economic outlook. In their latest report the researchers forecasted moderated economic growth around 1 percentage led by export and investments for 2014. That slight GDP increase is accompanied by low inflation rates. At the same time the growth lags behind the potential rates and log- term sustainability is also uncertain. High sovereign debt ratios and volatile prices of raw materials are the highest risks for the region. According to the researchers the further deepening of the integration is unquestionable and all member states should participate in it.

Legal supplement

The Common European Sales Law (CESL) and the Vienna Sales Convention (CISG)



This article examines the relationship between the United Nations Convention on  Contracts  for  the  International  Sale  of  Goods  (CISG)  of  1980  and  the  Proposal for  a Common European Sales Law (CESL) which was published on 11  October

2011  and  attempts  to  compare  both  instruments.  The  introduction  of  a  European instrument for cross-border commercial sales contracts would inserts a new, regio- nal instrument between the divergent national laws of the Member States and the international  sales  convention.  It  is  questionable  therefore,  that  the  business  world would prefer another legal instrument or not? That is why essentially important to analyze the major differences between the CISG and the CESL focus on the goals, the opt-in and opt-out approach, the scope of application and the style of regulation of both sets of rules.




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