Environmental Economics & Policies; Economic Theory & Research; Agribusiness & Markets; Markets and Market Access; Trade Policy; Free Trade
Volume No:
1
Summary: Hungary has achieved impressive results in reorienting both its production and trade. Between 1989 and 1992, as the former CMEA markets collapsed and Hungary liberalized imports and the exchange rate regime, exports to the European Union (EU) expanded, with manufactured exports redirected largely to Western (mostly EU) markets. During this first phase of expansion, characterized by a dramatic reorientation and explosion of trade, the value of Hungary's exports increased 84 percent. In 1993 export expansion lost steam and EU-oriented exports fell 12 percent. In a second phase of expansion (in 1994-97), driven by restructured and rapidly changing export offers, exports again registered strong performance, their value increasing 132 percent. There was a dramatic shift from an export basket dominated by resource-intensive, low-value-added products to one driven by manufacturers, with a rapidly accelerating growth of engineering products. Machinery and transport equipment rose from 12 percent of exports to the EU in 1989 to more that 50 percent in 1997. The shift from natural resource and unskilled-labor-intensive products to technology - and capital-intensive products in EU-oriented exports - suggests the potential for integration higher in the value-added spectrum. More stringent EU environmental regulations will affect a relatively low, and falling, share of Hungary's exports. The Hungarian share of environmentally "dirty" products imported by the EU has increased, but these products have not been trendsetters among Hungarian exports, their share in exports falling from 26 percent in 1989 to 16 percent in 1996. The rapid pace of Hungary's turnaround seems to reflect the emergence of second-generation firms, mostly foreign-owned. Foreign-owned firms tend to be more export-oriented. Hungary has been on of the more successful transition economies because its economy was receptive to foreign direct investment from the outset. Between 1990 and 1997, Hungary absorbed roughly half of all foreign capital invested in Central Europe.
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