1. Hungary: Growth, Competitiveness and Innovation
ICEG European Center
Hungary: Growth, Competitiveness and Innovation
Pál Gáspár
Budapest, 23 March, 2004 .
Presentation at the World Bank organized Knowledge Economic Forum, Budapest, Hungary

2. The Structure of Presentation
Part I: Hungarian growth performance
Part II: FDI inflows and investments
Part III: Innovation, Competitiveness
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3. Part I. Growth Experiences and Challenges

4. Growth performance in regional comparison
Three stages of growth
a) transition recession( ),
b) fast recovery and sustainable growth ( ),
slowdown in an unsustainable structure ( ).
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5. The Demand Side of Growth
Exports and investments driven growth( ),
Growing synchronization of business cycles with EU and Germany,
External demand shocks and expansive demand management ( )
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6. The Supply Side of Growth
Export driven industrial production determines output growth,
Growth decomposition: unequal contribution of labor, capital and total factor productivity
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Some Experiences
Role of macroeconomic policies is crucial,
Real and financial openness are simultaneously advantage and challenge,
Supply side reforms are an engine of growth, while their absence a constraint (corporate sector vs. public sector),
old competitiveness advantages disappear fast or might become a constraint
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Growth Challenges
Balancing long-term benefits and short-term costs/adjustment needs of EU Accession,
Balancing the costs and benefits of EMU-accession and meeting the accession criteria,
Shifting economic growth from labor to human capital and technology intensive one,
Improving supply side factors of growth (labor and capital, human capital).
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9. PART II. FDI: Ups and Downs

10. Central and Eastern Europe: Small but Growing Part in global FDI Flows
While global and emerging market FDI flows decline , CEE represents growing share,
FDI inflows stable on regional but volatile on country level,
EU Accession: new opportunities
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11. FDI in Selected Accession Countries: The Flows...
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….and the Stocks
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13. Factors behind high FDI inflows (1995-2001)
The privatization-liberalization-openness triangle,
Supply-side attractiveness, location,
Generous stimuli for FDI,
Positive and growing gap between productivity and real wage increases.
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14. The reasons behind declining FDI inflows (2002-2003)
Decline in privatization related FDI not compensated by greenfield inflows,
Absolute and relative losses in wage competitiveness,
Supply-side bottlenecks,
Declining attractiveness of FDI stimuli vis-a-vis other countries and domestic impediments,
Increasing FDI outflows from Hungary
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Future Issues
Reposition Hungary in shifting European production structure after Enlargement,
Accelerate the shift from labor to human capital, technology intensive investments and growth,
Adjust the supply-side bottlenecks (labor supply, education, infrastructure),
Strengthen the still weak horizontal and vertical links of FDI and local producers
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16. Part III. Competitiveness and Innovation

17. Growth Competitiveness Index(2003)
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18. ICEG European Center, www.icegec.org
Technology Index (2003)
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19. Selected Lisbon Indicators (2003)
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20. THANK YOU FOR YOUR ATTENTION PÁL GÁSPÁR Director 14 Korompai Street H-1124 Budapest Tel: Fax: Web site :