Industry restructuring and export performance: evidence on the transition in Hungary

Robust and numerous small and medium-size enterprises (SMEs) are a hallmark of the market economy and development of these firms is an integral part of the structural transformation of the economies of East-Central Europe (ECE). Data for Hungary on changes in the size distribution of firms and their importance for output and employment indicates that industry restructuring is taking place. One measure of the success of restructuring is export performance. That is, increased exports by those industries undergoing restructuring suggests that the process is creating firms that are successfully responding to market demand and international price signals. Disaggregated industry data from Hungary support the propositions that restructured industries and industries that have historically been important for domestic and export markets have become more important exporters. Moreover, it appears that Hungarian exporters have been effectively exploiting the switch from the CMEA market and the opening up of the border with the European Community. However, perhaps because of the short time series of the investigation, it is too early to tell whether Hungarian exports will respond systematically to standard determinants of trade, such as changes in EC income and relative prices.