International Co-operative Agreements in Hungary in the mid-1990s: Evolution, organisational forms and industry characteristics

As the legislation on foreign direct investment (FDI) in Hungary has been probably the most liberal in Central and Eastern Europe since the mid-1980s, FDI is the primary form chosen by Western firms to enter the Hungarian market. The major channels of FDI include the privatisation of former state-owned enterprises and green-field investment projects. Portfolio investment and non-equity forms of co-operation can also be found in Hungary, yet, their significance is almost negligible compared to FDI. A number of advantages, most importantly the highly skilled, experienced, yet, extremely cheap labour, and the geographical and cultural proximity to Western Europe give the Central European countries a certain competitive edge compared to other transition economies. On top of this, Hungary has opted for a unique approach to privatisation, i.e. sales of assets rather than voucher schemes, and offered a fairly liberal economic environment. Due to these factors, it has attracted roughly 45-50 per cent of the total amount of foreign capital invested in Central and Eastern Europe. These developments require a more detailed analysis. Major characteristics of the privatisation process, strictly defined, and the expansion of the private sector, including green-field investment projects, are discussed in Section 2. Sections 3-7 present the most important findings of sector studies, and identify major issues for further analysis.