State aid to the Hungarian manufacturing sector 1990-2000

Hungary made big efforts in the 1990s to carry out the tasks of transition to a market economy. The economy was place on market footing. Legislative frames were created, freedom of enterprise guaranteed, trade and capital flows liberalized, the state sector largely privatized, and state intervention through direct subsidies substantially curtailed. The state was in the process of withdrawing from economic activity. This was also expressed in the lack or slow development of an industrial policy concept. Industrial policy (and use of state aid) was targeted mainly at investment, especially foreign investment. The underlying concept was that investment decisions might enjoy general support, while picking winners was left to the market and entrepreneurs. State aid mainly took the form of tax holidays, not direct money transfers. Since conditions for these were strict (with size thresholds, sectoral and employment preferences, etc.) most of those qualifying were foreign investors. This aid policy seems to have been successful, as large amounts of investment capital poured into Hungary in the 1990s and contributed to a substantial increase in manufacturing competitiveness.