Abstracts of the Articles

Interpreting the disintegration of the eurozone from the perspective of state-centric approaches

ISTVÁN BENCZES

The crisis of the eurozone, the option of a Grexit, the fact of the Brexit or the steady ascent of Europe-sceptic parties all over the union is a clear indication of how the European integration is becoming a two-way process. Yet scholarly discourse has been mostly neglectful of explaining disintegration, and as a corollary, no clear theoretical, conceptual or methodological advances have been made in order to develop such a framework. The current article therefore, scrutinizes the process of disintegration from the perspective of so-called state-centric approaches of international relations and integration theories. It raises the question whether (neo)realism, classical and liberal intergovernmentalism and neoliberal institutionalism are useful conceptual frameworks in interpreting the disintegration of the eurozone. According to its main findings, state-centric approaches are able to explain divergence in state preferences, placing all those distributional conflicts in the focus of analysis which were either not part of European integration earlier or have had only a marginal impact.

Evaluation of Hungarian venture capital investments, in particular the investments of JEREMIE funds

RICHÁRD ILLÉS – ANITA LOVAS

The JEREMIE venture capital program terminated in the first half of 2016, and more than 350 companies received capital financing. In our research we created a sample of 200 firms with detailed company data and market information, and we examined the companies’ individual characteristics based on them. Regarding the investor side we evaluated the controlling tools and we noted that almost all of the funds gain majority ownership, what is more, they participate in the management board and supervisory board. The JEREMIE tender mainly aimed to help the development of companies located outside the Central Hungary area. The examination of the headquarters support this, however considering the business sites the activities are more concentrated to the central region. The venture capitalist not only finance newly developed products, a quarter of the companies also generates continuous income so it is not just about development and this justifies the investors’ intention to diversify. Companies aim to become international since 70 percent of them targets foreign markets.

A new basis for the development of Africa? The EU-Africa research and development cooperation

BEÁTA UDVARI – JÚLIA MEZŐ, URBÁNNÉ

Investment in science, technology and innovation may significantly contribute to sustainable development of developing countries – investments can be realized from own (financial and human) resources, or from sources coming from abroad (for example, foreign direct investment, loans, aid, technical cooperation, scholarship). Both the Millennium and Sustainable Development Goals – which determine the frames of international development cooperation (aid) – focus on the role of technology in development, so they also draw the attention to the importance of aid for innovation. The European Union as one of the largest donor organizations handles the technological development in African countries as a priority, and their close trade and aid relations have been extended with research and development cooperation, too. The main aim of this exploratory study is to analyze the research and development cooperation between the EU and Africa. Our findings based on the investigation of the aid for innovation (between 2002–2016) and Horizon 2020 projects pointed out: 1. around ¾ of the total aid for innovation provided to Africa is from the European Union, but it is only around 1 per cent of the total African bilateral aid and characterized by volatility; 2. the recipient countries of aid for innovation are concentrated but change in time; 3. the most supported sectors are agricultural research, research/technological institutions, medical and environmental research; 4. there is strong concentration of participating countries in the case of H2020 projects, and the targeted sectors of the implemented projects are similar to those of aid for innovation.

Abstracts of the Articles

Interpreting the disintegration of the eurozone from the perspective of state-centric approaches

ISTVÁN BENCZES

The crisis of the eurozone, the option of a Grexit, the fact of the Brexit or the steady ascent of Europe-sceptic parties all over the union is a clear indication of how the European integration is becoming a two-way process. Yet scholarly discourse has been mostly neglectful of explaining disintegration, and as a corollary, no clear theoretical, conceptual or methodological advances have been made in order to develop such a framework. The current article therefore, scrutinizes the process of disintegration from the perspective of so-called state-centric approaches of international relations and integration theories. It raises the question whether (neo)realism, classical and liberal intergovernmentalism and neoliberal institutionalism are useful conceptual frameworks in interpreting the disintegration of the eurozone. According to its main findings, state-centric approaches are able to explain divergence in state preferences, placing all those distributional conflicts in the focus of analysis which were either not part of European integration earlier or have had only a marginal impact.

Evaluation of Hungarian venture capital investments, in particular the investments of JEREMIE funds

RICHÁRD ILLÉS – ANITA LOVAS

The JEREMIE venture capital program terminated in the first half of 2016, and more than 350 companies received capital financing. In our research we created a sample of 200 firms with detailed company data and market information, and we examined the companies’ individual characteristics based on them. Regarding the investor side we evaluated the controlling tools and we noted that almost all of the funds gain majority ownership, what is more, they participate in the management board and supervisory board. The JEREMIE tender mainly aimed to help the development of companies located outside the Central Hungary area. The examination of the headquarters support this, however considering the business sites the activities are more concentrated to the central region. The venture capitalist not only finance newly developed products, a quarter of the companies also generates continuous income so it is not just about development and this justifies the investors’ intention to diversify. Companies aim to become international since 70 percent of them targets foreign markets.

A new basis for the development of Africa? The EU-Africa research and development cooperation

BEÁTA UDVARI – JÚLIA MEZŐ, URBÁNNÉ

Investment in science, technology and innovation may significantly contribute to sustainable development of developing countries – investments can be realized from own (financial and human) resources, or from sources coming from abroad (for example, foreign direct investment, loans, aid, technical cooperation, scholarship). Both the Millennium and Sustainable Development Goals – which determine the frames of international development cooperation (aid) – focus on the role of technology in development, so they also draw the attention to the importance of aid for innovation. The European Union as one of the largest donor organizations handles the technological development in African countries as a priority, and their close trade and aid relations have been extended with research and development cooperation, too. The main aim of this exploratory study is to analyze the research and development cooperation between the EU and Africa. Our findings based on the investigation of the aid for innovation (between 2002–2016) and Horizon 2020 projects pointed out: 1. around ¾ of the total aid for innovation provided to Africa is from the European Union, but it is only around 1 per cent of the total African bilateral aid and characterized by volatility; 2. the recipient countries of aid for innovation are concentrated but change in time; 3. the most supported sectors are agricultural research, research/technological institutions, medical and environmental research; 4. there is strong concentration of participating countries in the case of H2020 projects, and the targeted sectors of the implemented projects are similar to those of aid for innovation.

Abstract of the Article

Earnings and Skill Premia at Foreign-Owned and Exporting Firms of Manufacturing Industries In Hungary

KÁROLY ATTILA SOÓS

In Hungary, one of the most open member countries of the European Union, an obviously important question is how this openness „treats” the labour force. This question is being analysed in the article in the field of processing industries, focusing on foreign ownership of firms and exports. After reviewing the literature of the issues, we analyse, with econometric methods, how (partial) foreign ownership and export activities influence the earnings of the workers of the firms concerned; how skill premia of more qualified employees move at companies owned (part-owned) by foreigners.

The devil in the details – internationalisation of a hybrid company

KATALIN ANTALÓCZY – MAGDOLNA SASS

The internationalisation of state-owned enterprises is a relatively rarely analysed problem in spite of the importance of these companies in the world economy or in their respective economies. The state-owned companies of East Central Europe were expected to disappear after the transition process is over, however, there is a relatively large number of them, which “escaped” privatisation and is in majority or minority foreign ownership. The article analyses a minority state-owned company, the Hungarian Richter Gedeon. Though the case of this company has very special characteristics, it can call attention to the problems and further interesting details of the internationalisation of hybrid state-owned companies. We call the attention to the important role of management in shaping the independence of the company, the direct and indirect (as regulator) role of the state, through which it can determine or at least influence the operation of the company in question.

EU policy towards the Southern Mediterranean in light of the financial operations of the European Investment Bank

TAMÁS SZIGETVÁRI

Support for the economic development of the Southern Mediterranean region has been on the top agenda of the European Union for more than two decades. The consequences of the Arab Spring and the growing migratory pressure, however, have increased the importance of the development needs of the Mediterranean countries in recent years. The European Investment Bank (EIB) is the European Union’s development bank, which carries out an ever-growing development lending activity in the regions outside the EU. This activity is closely related to the EU’s external (neighbourhood and development aid) policies. This study analyses the lending activity of the EIB in the Southern Mediterranean region, and seeks to demonstrate the priorities and the means by which the EIB supports the economic development of the region, and its ability to keep up with the growing expectations it has to face.

JOGI MEllékLET

The Hungarian “Maltese Marriage case”, circus artists, magicians and shares: old cases in the light of the codification of some general part rules of the new Private International Law Act

Sarolta Szabó

On 4th April 2017, the Hungarian Parliament adopted the new Act No. XXVIII of 2017 on Private International Law (hereinafter referred to as “the New Code”; entered into force 1st January 2018) aimed at modernizing and refining the rules of the replaced Law Decree No. 13 of 1979 on Private International Law (hereinafter referred to as “the Old Code”). In this paper, some legal cases of the Old Code practice are presented and analyzed, which, according to the author’s hopes, not only give an insight into the sometimes complicated functioning of general law institutions but also to explain some of the reasons behind the New Code’s certain modifications.

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:

http://www.husk-cbc.eu/ 

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

ATTILA KÁROLY SOÓS

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

ÉVA VOSZKA

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.

Nationalizations: Hungarian specialty or a new European trend?

ÉVA VOSZKA

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

ÁGNES HÁRS

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

BEÁTA UDVARI – JÚLIA MEZŐ URBÁNNÉ

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

LÁSZLÓ FIKÓ

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

VERONIKA CZINA

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

BALÁZS HORVÁTHY

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

VIKTOR SZÉP

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.

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

ATTILA KOVÁCS

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

PÉTER VINCE

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

ÁGOTA DÁVID – TAMÁS SZIGETVÁRI

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?

JULIANNA PONTET – BEÁTA UDVARI

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

KATALIN RAFFAI

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

GÁBOR KOÓS

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.

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

KATALIN ANTALÓCZY – ZSÓFIA NASZÁDOS

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?

MAGDOLNA SASS

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

EDINA BERLINGER – ANITA LOVAS

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

ÁRPÁD BALÁZS SZŰCS

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?

TAMÁS SZIGETVÁRI

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

LÁSZLÓ PARDAVI

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.

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

KATALIN NAGY – NÓRA SERFŐZŐ

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

PÁL VALENTINY

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

PÁL RÉTI

 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

SEJLA AMAN – ANITA LOVAS

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

BALÁZS HÁMORI – KATALIN SZABÓ

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

OLIVÉR CZÉKMÁNY

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.

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

ZSUZSANNA HEGEDÜS – JUDIT KISS

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

TIM GITTINS – RICHARD LANG – ÁGNES OROSZ

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

TAMÁS SZÉKÁCS

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

JÁNOS MARTONYI

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

ANNA BAJUSZ

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.

Overcoming Asymmetric Information in Venture Capital Finance

Theoretical approach and evaluation of Hungarian findings

SEJLA AMAN – ANITA LOVAS

 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

 KATALIN NAGY – NÓRA SERFŐZŐ

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

PÁL VALENTINY

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

PÉTER VINCE

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

 KATALIN RAFFAI

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.