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Investment And Contract Enforcement In Transition: Evidence From Hungary

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  • Swinnen, Johan F.M.
  • Cungu, Azeta

Abstract

Contract enforcement problems are a significant constraint on investment and growth, especially so in developing and transition economies. Evidence on these effects is mostly limited to case studies. This paper analyses the impact of contractual breaches on capital investment, using a unique dataset of Hungarian agricultural enterprises who contract production to processing firms. Contract breaches, under the form of delayed payments for supplied products, have a significant negative effect on investment at the primary production level. They occur more when the expected benefits from breaching are larger, e.g. when the price of capital is high, and when expected costs are lower, due to poor external contract enforcement or lower private enforcement capital.

Suggested Citation

  • Swinnen, Johan F.M. & Cungu, Azeta, 2003. "Investment And Contract Enforcement In Transition: Evidence From Hungary," PRG Working Papers 31862, Katholieke Universiteit Leuven, LICOS - Centre for Institutions and Economic Performance.
    • Handle: RePEc:ags:kuliwp:31862
    DOI: 10.22004/ag.econ.31862
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    Cited by:

    1. Aboal, Diego & Noya, Nelson & Rius, Andrés, 2014. "Contract Enforcement and Investment: A Systematic Review of the Evidence," World Development, Elsevier, vol. 64(C), pages 322-338.
    2. Sebastián Fleitas & Andrés Rius & Carolina Román & Henry Willebald, 2013. "Contract enforcement, investment and growth in Uruguay since 1870," Documentos de Trabajo (working papers) 13-01, Instituto de Economía - IECON.

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