On the 2003 issues of the Külgazdaság journal

Külgazdaság 2003/12

Brief Summary of the Articles

Foreign direct investments and the modernisation of foreign trade - international and Hungarian experiences

KATALIN ANTALÓCZY - MAGDOLNA SASS

In the last decades, the majority of structurally backward developing countries and later the transition economies - both lacking capital - deliberately based the restructuring, modernisation and improvement of competitiveness of their economies on foreign direct investments. Aspirations and hopes based on the beneficial effects of foreign direct investments can be illustrated by the general liberalisation of national regulations of direct capital flows and by the abolition of barriers to these flows. The authors review the possible impact of foreign direct investments on the competitiveness of exports, on the structure of foreign trade, and on the comparative advantages of the host economies and their actual effects in selected developing countries and in Hungary.

The perspectives of the Hungarian innovation on the eve of EU-enlargement

ANTAL NIKODEMUS

The main driving force of the economic development in a modern economy is the production, flow and utilization of knowledge. Hungary has good ability in this field, which is mainly due to the well-qualified, domestic "grey matter" and the significant R&D expenditure of the multinationals. Significant increase of R&D expenditure needs for the development of our chances, more concretely better participation from the enterprises, intensification of the relationships among big TNC and Hungarian knowledge-bases. Besides it also needs for the improvement of technology-transfer among multinationals and local SMEs, the efficiency of those measures, which help the development of innovative small- and medium-sized enterprises; the establishment and networking of university scientific, innovation centres, which enhance the innovation.

The extern inflationary surplus in Hungary and the optimal timing of introducing the Euro

Ákos Dombi

Due to the optimal timing of Hungary 's European monetary integration this study tries to draw attention to a dimension about which the profession have not shown great concern yet. Related to the real-economic costs of accomplishing the inflationary criterion of Maastricht, the rate of the structural surplus having been existed since the beginning of our closing-up and of the inflationary surplus based on the consumer price structure coming up after joining the European Union may cause worriment. The Balassa-Samuelson effect concerning all the upsurging economies underlies the former and due to the antecedently regulated price system the prices - lower than EU-average - of some of the product groups underlie the latter. Whereas both the closing-up of the Hungarian economy and the approach of the consumer price structure to the EU average are long procedures, so the breakdown of the inflationary surplus needs a steady and consistent deflationary policy whose real-economic costs can not be estimated easily yet. Anyway the "sacrifice ratio" of other countries' previous deflationary policy and the rate of the expected inflationary surplus in Hungary coming from the fore-mentioned reasons are solemn questions, particularly, if we reckon with the results of a MNB Working Study (2002). On the basis of the optimal currency area theory this paper analysed the cost-benefit balance of Hungary 's membership within the monetary union. The objective of this study is to draw attention to this problem and to resolve the excessive euphoria about an early introduction of the Euro.

Külgazdaság 2003/11

Brief Summary of the Articles

Grey is all theory - Relation between privatisation and competition

ÉVA VOSZKA

In the course of economic transformation the two basic ingredients of market economies, private ownership and competition, do not necessarily strengthen each other, they may even conflict. Although it has never been a declared policy, privatisation gained priority over market structure improvement in Hungary . Throughout the nineties a consistent demonopolisation policy was missing. There were no decision-making criteria and defined regulating procedures for curtailing monopoly power. The paper presents a wide range of enterprise reorganizations demonstrating that in most cases demonopolisation was an unintended consequence or by-product of bargaining short-term fiscal or political convenience.

R+D and innovation activities of the small ones

DR. ANNAMÁRIA INZELT

The competitiveness and welfare of a country - among others - depends on whether there are innovative small enterprises and what kind of life path they can achieve. The processes of different nature which are influencing the rise and operation of micro- and small enterprises have a great effect on the competitiveness of a country and on it's ability to create jobs which are knowledge-intensive and contain high value added.

Therefore it is important to know what kind of organisation the micro- and small enterprises are and why are they innovative or afraid of innovation? Why do certain enterprises become successful while others end up without success? What kind of obstacles do the innovative ones face during their operation?

The article tries to answer these very important innovation-related questions by using the data of an experimental survey. There are already several programs in Hungary for the improvement of the knowledge level and the operation promotion of micro- and small enterprises. A group of the examined enterprises belongs to the participants of these programs while several companies did not obtain such support. This sample selection makes possible to touch upon an issue which is so important for the economic and innovation policy, that is to what extent do micro- and small enterprises make use of innovation founds and how they can benefit from state-financed supports.

Vertically Differentiated Trade and Differences in GDP Per Capita - The Case of Agri-Food Products between Hungary and the EU

IMRE FERTŐ

The paper investigates the relationship between GDP per capita and vertical intra-industry trade (IIT) in agri-food products between Hungary and the EU. Intra-industry trade is separated into its horizontal and vertical components on the basis of differences in unit values. Three different approaches to measuring IIT are employed and these are then tested using standard regression models. Results show vertical type trade is predominant in total IIT of agri-food products. Using Flam and Helpman type vertically differentiated trade models, we find a positive relationship between GDP per capita and vertical IIT. It is also shown that variation in income distribution has no significant effect, and distance affects significantly only N models of vertical IIT. More importantly, using a measure of IIT that reflects the level of trade produces better regression results than those based on the degree or share of IIT. The model relating to Hungary 's vertical IIT in agri-food products yields the most promising results in terms of explanatory power.

Külgazdaság 2003/10

Brief Summary of the Articles

New frames of the international agricultural trade State of play before Cancún

Péter Halmai - Andrea Elekes

The Agreement on Agriculture of 1994 has created new environment on the world market of agricultural products. However, the situation can not be characterised by deregulation: very complex policy instruments are implemented leaving significant space for national manoeuvres. Further results can be expected from the ongoing agricultural negotiations under the current WTO round. On the basis of the analysis of the negotiating positions and the Harbinson draft, what forms the starting point of the prospective final agreement, it seems to be apparent, that the most important negotiators are interested in the compromise. We should although stress that total liberalisation of agricultural trade can not be expected not even in case of successful negotiations. New international rules however, may further narrow the possibilities of national agricultural policies and may drive back the use of market distorting policies.

Transition to a market economy in Russia

GYÖRGY SIMON JR.

Russia, the largest member republic of the former Soviet Union trod on the path of democratic transformation in the late eighties. It gained independence in 1991. Despite widespread popular discontent, market reforms were initially attempted by shock therapy and forced-pace privatisation of state-owned enterprises. This strategy brought about a sharp antagonism between the reform-minded government and the predominantly conservative legislature, which ended with the defeat of anti-reformist forces in 1993. Then it became obvious that the political and social costs of shock therapy were too high for Russia 's fragile democracy to bear. Therefore the radical reform policy was temporarily suspended, while the transition to a market economy was going on inconsistently and often unevenly. Although in 1997 the Russian economy got over the transformational recession, the financial and fiscal discipline was greatly undermined by wild-running corruption and crime. In the next year, as a consequence of unfavourable internal and external factors, the country was shaken by an acute financial crisis, which also had an impact on world economic processes. The crisis of 1998 in Russia has been followed by a sustainable economic growth, and since the turn of millennium the reform policy has been given a new stimulus. As a result, in the last years there was a progress in the widening of privatisation, in transformation of the financial sphere, energy sector and railway transport, in the settlement of agrarian relations, and in the field of employment policy, tax reform and pension reform. However, the situation in Russia 's economy strongly depends on the oscillation of world market prices of energy carriers, which together with the persisting crisis phenomena in a number of areas makes the future of the country and market reforms to a large extent uncertain.

On the Argentine Gap

LÁSZLÓ PALOTÁS

The article offers a survey of Argentina 's approach to the international economy over the past 150 years. Reasons it suggests for the enduring gap, particularly visible from the middle of the 20 th century onwards, include: overkill in the application of both liberal and protectionist development strategies and an ill-fated mixture of Anglo-Saxon and Mediterranean , democratic and authoritarian-dictatorial rules of government, which led to unreliable economic and political institutions and violent social conflicts. However, the author sees the military regime of 1976-1983 as the main culprit. That regime perpetrated politically motivated genocide, crippled national industry with harsh neo-liberalism, and drove Argentina's economy back to the primary-exports model (despite growing agricultural protectionism in Europe and a US market that was never really open to Argentine exporters), leaving a devastating foreign debt in its wake.

Külgazdaság 2003/9

Brief Summary of the Articles

The competition policy of the EU and the regulations of the investment incentive systems

Éva Havasi

In the EU the issues related to the regulation of state subsidies fall clearly into the competence of the community. With the creation of the legal framework of the state subsidies and with the authorisation and control of the subsidies, the national competencies of the eventual sanctions had to be delegated to the institutes of the EU, mainly to the Commission. The national regulators of the competition and subsidy policies had to be subordinated to the control of the EU. One of the most delicate issues of the enlargement negotiations with the Eastern-European countries was exactly the chapter about the competition policies, the subjects in connection with state subsidies. In the interest of reaching mutual compromise and the successful conclusion of the discussions as well as to achieve membership status the candidate countries were forced to push some of the national interests temporarily to the background and put the expected long term interests and results of the Community achievement to the front. The article examines the EU-directives concerning state subsidies and their practical use in the member states.

Globalisation and the new economy

ROZÁLIA BOGONÉ JEHODA

The development of information and communication technology (ICT) has played and still is playing a key role in the propagation of globalisation. With the spreading of computers and the automation gaining more and more ground, followed by the appearance of the world wide web, the effects on the development of internationally integrated production, service and distribution systems, as well as on the diminishing of distances is well known. The article takes a look at how the conditions of globalisation change within the circumstances of the new economy, what kind of new forms of relationship develop among the individual participants of the economy, what are the multinational and domestic companies, the governments and the international organisations doing to guide the power of the genie freed from the bottle into a positive direction.

Economic Catch-Up And Growth Factors

György Simon

The paper investigates the catch-up possibilities of Hungarian economy with the European Union and United States , analysing the catch-up process in the past decades, before and after the regime change (1960-2001). According to the empirical results, economic catch-up requires a relatively long time, even if it continues at the rate of the hitherto most favourable period (1996-2001). A more rapid catch up, in addition to the use of foreign sources, can be primarily ensured by a more efficient economic policy. In this connection, the paper, on the basis of an endogenous growth model elaborated by the author, analyses the fundamental causes of the Hungarian economy's lagging behind the advanced world level, namely that of the United States. Its main conclusion is that the catch-up process can be accelerated by actively developing human capital, namely education and research and development.

EU accession, tax harmonisation and Hungary 's international competitiveness

MIKLÓS LOSONCZ

The study focuses on the most significant regulatory changes following Hungary 's accession to the EU in the field of taxation as well as their impact on Hungary 's international competitiveness. With the accession treaty becoming effective, the guidelines issued by the European Commission on taxation have to be considered in Hungary as well. The regulatory framework changes most significantly in corporate taxation. Former generous tax incentives which promoted the inflow of foreign direct investments have to be replaced by more restrictive Community rules. This will have an adverse impact on Hungary 's international competitiveness. Hungary 's competitive edges regarding the low tax rate on corporate profits has been eroded by the reduction of the rates of the competitors. In order to improve her attractiveness in taxation, Hungary has some room of manoeuvring in shaping local taxes and depreciation policy.

Külgazdaság 2003/7-8

Brief Summary of the Articles

Determinants in the Wage Incease of 2002 - Analysis Based on Statistical Data and a Corporate Survey

ÉVA PALÓCZ - JÁNOS I. TÓTH

Real wages in the Hungarian economy have grown more than twice as fast in 2001, and more than three and a half times as fast in 2002 than the performance and the productivity of the economy. Real wage growth in the private sector was slightly more moderate but still high. However, even this rate of growth led to a significant increase of unit labor costs and a deterioration in the country's external competitiveness.

One of the objectives of our paper is to aid the discussion on the frequently disputed question, why corporations were willing to increase wages by such a high degree, when not only the slowdown in the international macro-economy, but also the appreciation of the Forint was aggravating their profitability. Our paper provides analysis of three possible factors: overestimation of the expected rate of inflation by the companies; radical increase of minimum wages in 2001 and in 2002 (from 25500 to 50000 HUF); and finally a significant growth of wages in the public sector.

The second, but just as important, objective of our paper is to provide an estimation on the level of planned corporate wage-increases for the current year based on the business-survey of MKIK GVI. In order to reestablish the competitiveness of the private sector, wage-growth should be no more than the increase in performance (i.e. the GDP growth-rate). Employees, however, are aiming for significantly higher wage increase in several sectors of the economy.

Analysis of large real exchange rate appreciations

Zsolt Darvas

In the past three decades several countries of the world have experienced fast and large real exchange rate appreciation, similarly to the recent Hungarian experience. This paper studies macroeconomic policies and outcomes during and after large real exchange rate appreciations. The two main lessons of the paper stresses the importance of the equilibrium real exchange rate and of macroeconomic policies. First, the magnitude of the appreciation itself is not informative to the possible consequences as the relation the to equilibrium real rate matters. Second, macroeconomic policies have a determinant effect on outcomes. For example, in those floating exchange rate regimes when the real exchange rate appreciation proved to be transitory but lead to a permanent reduction of inflation and the external balance did not deteriorate during the appreciation and the output loss was less pronounced than in many exchange-rate based stabilizations, fiscal policies tightened during the appreciation period and nominal wage growth declined parallel with falling inflation.

Economic reforms in Romania

GYÖRGY SIMON JR.

After the downfall of Ceausescu's regime in 1989, Romania trod on the path of democratic transformation. The market reforms, however, because of the delaying tactics of old state and party nomenclature, partly retaining its power, were realised in a contradictory, often odd manner during the nineties. In the course of the past decade, internal difficulties were aggravated by the rearrangement of global and regional power relations following the disintegration of the Soviet Union and Yugoslavia , which confronted the Romanian economic policy with new challenges. Though the basic economic tasks of transition (stabilisation, liberalisation, institutional reform and privatisation) were often solved at a pace not rapid enough, by the turn of millennium the foundations of a modern, functioning market economy had been on the whole laid down in the country. In spite of this, Romania has not yet got over the first phase of regime change, as it has still problems to tackle with in various particular spheres. Since the early nineties, the European Union has been supporting more and more vigorously the reform policies of the Romanian government. As a result of its efforts to participate in the European integration, Romania became a candidate country of the EU in 1995, and three years later the accession negotiations began. Considering the fact that in many areas Romania lagged behind the more advanced candidate countries, at the Copenhagen meeting of the European Council in December 2002 a decision was made to schedule the accession of Bucharest to the Union for 2007.

A short inquiry about the pension system

There is a long and ongoing debate about the optimal pension system among experts of both the theoretical and practical fields all over the world. György Németh made an attempt to survey the topic from a certain point of view in the January and February 2003 issues of our monthly (György Németh: Essay about the pension, the pension systems and pension reform part I and II. Külgazdaság, 2003. issues 1. and 2.) We consider that it is worth to encourage the discussion of different standpoints and revise new viewpoints.

Our questions related to the topic are:

1. The differences of opinions concerning the pension system, how much and in which features are they of value selection (ideological) or of professional (theoretical and practical) nature?

2. To what extent do the foreign researches, debates and experience of other countries play a role in the shaping the domestic system? What are the lessons to be taken into consideration the most?

How do you evaluate the domestic pension system in its current state and what do you think would be the desirable direction of the changes?

Flexible working hours and the account of yearly working time

BEÁTA NACSA - ANTAL SERES

One of the factors in adapting to the competition on global scale might be the adjustment of working hours to the seasonality and fluctuation of economic activities. The article examines the experience of using flexible working hours in the European Union and in the Hungarian economy through the example of yearly working time account. With the exhaustion of extensive resources, the intensive methods of the increase in efficiency gain a growing role. One of these methods is the improved utilisation of working hours. The aim of this method is the decrease of labour costs and the increase of competitiveness. The process involves several conflicts and contradictions in the labour sector because it is difficult to reconcile the considerations of both efficiency and employment.

Külgazdaság 2003/6

Brief Summary of the Articles

Technology policy and institutions promoting an IT-based catch-up

Andrea Szalavetz

The paper analyzes the performance of Hungarian technology policy and institutions aiming at promoting the IT-based catching-up of the country. It tries to provide evidence for the claim that although in the initial stage of the industry's life cycle Hungarian economic policy has successfully organized for the country's specialization in IT-hardware production, in the present maturing stage of the life cycle priority changes have become necessary. Both the objectives and the incentive structure of Hungarian technology policy institutions have to be reconsidered in order to be able to sustain the modernization achievements of the Hungarian economy.

The necessary institutional changes can be summarized by the claim that the properties of the Hungarian National Innovation System have to correspond to the requirements of knowledge economy industries' technological systems. The paper enumerates several examples of technological systems characteristic in specific 'new economy' industries and analyzes what a match between national systems and technological systems means, and formulates some economic policy recommendations.

Financial Crisis in Japan : Analysis of Causes and Pursuit of Loopholes

VALÉRIA SZEKERES

There have been thorough and diverse factors behind the evolution of the Japanese bubble economy and the financial crisis in the 1990s. These factors included inconsistencies in the regulation of financial and tax systems, and shortcomings in financial management. Besides, problems have also been caused by over-saving and postponement in decision-making, as well as by distortions in social system. Thus, radical changes in many fields are needed to make an end to the crisis. They would promote the development of a market economy based on individual responsibility.

Foreign Direct Investment into the Czech Republic and Hungary and its effects on their economies

KÁRPÁTI TIBOR

One of the greatest successes of the Hungarian economy in the 1990s was its ability to attract FDI into the economy. The significance of this achievement was even greater because the per capita investment was higher than in Hungary 's main competitors, namely the Czech Republic and Poland . In recent years, however, Hungary 's ability to attract FDI has decreased sharply, while the Czech Republic has been seen a spectacular improvement in its own performance. Consequently, Hungary has lost its former leading position. The article investigates the inflow of FDI over the last ten years and analyses the most important reasons for and effects of the change.

The main features of tax harmonization in the European Union

Zsuzsanna GALÁNTAINÉ Máté

The article looks into the European Union's efforts on tax harmonization and its results. The harmonization of taxes inside the Union aims to coordinate the way of ensuring a fair and free competition for the countries' tax policy and of winding up the differences which distort the commerce. The changes in the harmonization are progressing in line with the current degree of the Community's integration. The European Union intends to establish a harmonized system in respect of the turnover tax and corporate tax while maintaining the national tax policy. At the same time, its intention is to assure coordinated actions in the other fields, as well. The fastest progress of harmonization is taking place in the domain of value added tax, though this procedure hasn't been finished yet even in this respect. The progress is held back by the fact that the member countries have no common will, especially in the coordination of the direct taxes. There is no uniform point of view for how much the tax policy can be standardized without damaging the independence of national budgets. The general process of tax harmonization is continuously going on and in theory may have rather different results. It can be expected that the member countries will renounce the excessive income withdrawal in order to improve their international competitiveness, which would result in a significant decrease of the tax proceeds. This could seriously affect particularly the new member countries in meeting the budget requirements.

Külgazdaság 2003/5

Brief Summary of the Articles

Economic Analyses in Spring 2003

In springtime of every year economic research institutes regularly publish their analyses about the performance of the previous year as well as their forecasts. The press usually informs only about the most important economic data and about the analysis in a few words, the detailed studies prepared by the institutions do not generally reach those who are interested. This is the reason why since 2001 we publish a short summary of the reports and prognosis of the research institutes. The deterioration of Hungary 's conditions of macroeconomic balance and economic growth at the brink of EU-adhesion requires to make the different points of view reflecting to these problems known.

Germany - Delayed Reforms, Stagnant Economy

KATALIN NAGY

Stagnation implying risks of deflation characterises the German economy early 2003. Arising difficulties rooted in reunification may only partly be made responsible for prevailing low growth and inadequacies in the labour market. However, arising problems may much more be explained by structural tensions having accumulated in the past and never been properly addressed for years. The reform of the social systems, the reorganisation of the pension and health care systems, or the liberalisation of labour market structures have already been on agenda for years. The growing deficit of the budget and of local communities urge for taking necessary measures within a foreseeable time. Although several reform concepts have been developed so far, their practical implementation has mostly failed. The present situatiuon can be characterised as a growth and a creditability crisis. The inability of the government to carry out necessary reforms has been responsible for the latter, and the unforeseeable outcome of the Iraque conflict as well as the future development of oil prices coupled with uncalculatable ups-and-downs on stock markets only deepened uncertainties. An efficient policy response to the above problems has been made rather difficult by the compulsory force of meeting the requirements set in the frame of the Growth and Stability Pact, and by the failure of the tripartit agreement between government, employers and employees. The long-awaited development concept of the federal government has been introduced under these circumstances. Due to the rather diverging expectations of economic participants the acceptance and thus the successful practical implementation of this programme seems to become a rather contradictory process.

Implementation of the Agricultural Policy of the USA up to the Present

József Popp

The main goal of this paper is to analyze the agricultural policy measures of the USA from the beginning until recently. The study confirms the reasons of the amendments of the First Agricultural Act of 1933 in order to understand the implementation of different policy measures in the period between 1930 and 2002. The agricultural policy of the USA has always had a strong influence on the Common Agricultural Policy (CAP) of the EU. The correlation between the policy measures implemented by the USA and EU is highlighted in this analysis as well. This is why the reform of CAP in 1992 and Agenda 2000 was facilitated by the agricultural policy of the USA in terms of the introduction of direct payments based on the base area and historic production yields. The transfer efficiency of support measures with respect to income indicates that less than half of the original payments of the different support measures translate into net farm income. Decoupled subsidies from production are more efficient for income transfer to farm households.

Külgazdaság 2003/4

Brief Summary of the Articles

Investment incentives and Hungary's adhesion to the European Union

KATALIN ANTALÓCZY - MAGDOLNA SASS

Hungary 's adhesion to the European Union will induce fundamental changes in the encouragement of domestic investments. The former system of tax allowances for major investors has been abolished early 2003, meaning that after the date of adhesion it will not be allowed to establish customs-free zones and the methods of assistance have to be adapted to be EU-compatible. Hungary as a target country for investments will be able to benefit from the membership from 2004 onwards, at the same time the investments incentives will be limited by the common competition policy. We must cope with such circumstances in the more and more fierce international competition for FDI. This article surveys the tendencies of investment incentives in the world economy and outlines the most important features of the assistance system in the EU as well as the probable changes due in 2004. The article analyses the development stages of the Hungarian investment incentive system in detail, starting with the late 80s and presents its elements, which are contrary to the principles of the EU. Finally, it introduces the results of in-depth analysis and surveys among foreign investors concerning the shaping of the system of investment incentives.

On dynamics of the Hungarian trade

Imre Fertő

We analyse the evolving pattern of Hungary 's trade using recently developed empirical procedures based around the classic Balassa index and its symmetric transformation. The extent of trade specialisation exhibits a declining trend; Hungary has lost comparative advantage for a number of product groups over time. The indices of specialisation have also tended to converge. For particular product groups, the indices display a less persistent pattern. They are stable for product groups with comparative disadvantage, but product groups with weak to strong comparative advantage show significant variation. The results reinforce the finding of a general decrease in specialisation, but do not support the idea of self-reinforcing mechanisms, emphasised strongly in much of the endogenous growth and trade literature.

The Croatian economy at the turn of millennium

GYÖRGY SIMON JR.

Croatia , one of the most developed republics of former Yugoslavia , strengthened its independence in the result of war against Serbia and Montenegro in the first half of the nineties. In this period, under the circumstances of war economy, a successful stabilisation programme was carried out, and the foundations of economic and financial autonomy were also laid down. After the end of South Slav conflict, the jurisdiction of the Zagreb government was gradually restored in the whole territory of the country. The reconstruction began and, despite temporary crisis phenomena, the transition, the building of a modern, competitive market economy went on. At the same time, in the nineties an essentially dictatorical regime was in power in Croatia . Therefore, a genuine democratisation, involving the acceleration of market reforms and closer relations with the European Union, started only in our days, with the turn of millennium.

The tasks of the EU budget and the proportional bearing of burden

ÁKOS KENGYEL

The future of the common budget should be based on investigations of a series of open questions. This study takes its starting point by analysing the current situation and tries to find the answer: which are the considerations defining the EU budget in the long term. During the research the author devotes special attention to the principal question (based on the behaviour of the candidate countries): that is analysing the need of "fair" contribution, since the debates up till now have clearly proved that the most important aim is to ensure the proportional bearing of burden. To ensure the political recognition of the European integration process, the return gained from the distribution through the common budget should be in inverse proportion to the level of development of each member country. If the EU will not be able to set up an acceptable regulation of the budget financing which ensures the proportional bearing of burden and the successful implementation of the different policies, the negotiations about the compensation packages will still be the key issues during the discussions about the common budget.

Külgazdaság 2003/3

Brief Summary of the Articles

All-round inquiry about the probable direct effects of joining the EU - part III

As the date of joining the EU is approaching, it is becoming more and more important to identify: what are those direct, quickly valid economic and social effects, changes and new situations the economic and private sector will have to face. We ask to take all the positive and negative consequences into consideration, which should or have to be reckoned with - with various degrees of validity - right after the day of adhesion, and which indicate an important domain for both the companies and the private sector. One of the elements of preparing for joining is that the experts take these effects into account from various aspects.

The possible circle of effects is rather wide, this time we list only a few of them as we try not to limit the affected domains of problems. These are the variation of prices and wages, the employment and migration of workforce, the situation of competition and entering the market as well as the interest rates, economic growth, direct capital investment, macroeconomic balance, areas with profit and deficit, quality of life, welfare supplies, and the effects of introducing EU-directions.

Determinants for development: dynamic/successful and declining/stagnating groups of firms

JUDIT HAMAR

Changes in economic conditions of growth over the past decade - both in the world economy and in Hungary -, were due to the modification in determinants of aggregate productivity growth. Approaching the full membership of the EU, it is crucial, in what pace and how successfully the Hungarian economy could catch up to the developed (EU-member) countries. This article summarises the results of a detailed mathematical-statistical (cross-sector) analyse. By studying the company data systematically and at a many-sided way (over the period of 1996-2000, in manufacturing, according to the ownership pattern, the export-orientation and firm size), the aims were to determine the essential variables of economic performance of companies, to define specific and general features, and to determine the essential links among variables. Earlier studies proved that analysing aggregated data by company groups, the mean overlooks the effects of structural changes, and not let determine whether the extreme cases, or rather the changing average behaviour of the companies in the group caused the significant changes by groups. *
* The research was partially supported by OTKA project no: T 035132 KGJ

"New economy" phenomena: the tertierization of manufacturing industry

ANDREA SZALAVETZ

As a result of a thorough adjustment process to new business environment, and to new competitive conditions, a new business model has emerged in the "new economy". In this model, it is the capability of economic actors to integrate previously separated activities in a new creative manner, and to combine elements of "old knowledge" with new ones that can provide sustainable competitive advantage. The new combination of activities has blurred corporate boundaries. The tertierization of manufacturing has accelerated, which has an effect on the distribution of various types of world trade. (Alongside to the present prevalence of two major types of trade [inter- and intra-industry trade], a third type of trade emerges: trade among related companies, which I refer to as "inter - related-industries trade" IRIT). The paper gives an overview of theories on the tertierization of industry and on the re-definition of the concept of industry. It analyzes the methodological difficulties of statistical data on international trade in services (the difficulties to quantify the volume and the value of intra-firm services) and examines the effect of the tertieratization on the manufacturing firms in transforming economies.

Külgazdaság 2003/2

Brief Summary of the Articles

All-round inquiry about the probable direct effects of joining the EU - part II

Essay on pension, pension systems, pension reform - II. Part

GYÖRGY NÉMETH

In the second part of his two-part paper the author provides a detailed analysis of the problems that actually cause the crisis of the pay-as-you-go pension systems; the primary cause is to be found in the historic circumstances of their formation. Understanding is made difficult by the fact that the accounting system of the state budget gives different account of the macroeconomically identically functioning pay-as-you-go and pre-funded pension systems. Next the author reviews the so called three-pillar proposal for pension reform made by the World Bank and presents the 1997 pension reform carried out in Hungary - modelled on the World Bank proposal but greatly differing from it. Review of the Administration's arguments follows, and the author claims that they do not stand the test of economic investigation. He points out that the most important step of pension reform has not been the establishment of the pre-funded pillar, but the elimination of a large part of implicit state debt embodied in the first pillar.

Liberalization of the international trade in services

ANDRÁS JANCSIK

The international expansion of the service sectors dominating the economies of the developed countries is facing numerous obstacles due to the specific nature of services. Thus the 1980s saw the development of a considerable "liberalization deficit" in this area, which prompted GATT member states to put the issue on the agenda of multilateral trade negotiations. The General Agreement on Trade in Services (GATS) achieved at the Uruguay Round was regarded as a milestone in terms of developing regulations; however, it did not signal effective headway in opening up markets, as member states mostly only set down the already achieved liberalization in their commitments. During the 1990s, the accelerating technical modernization and the full internal liberalization of the major integration blocs highlighted the need for substantial quantitative and qualitative progress in the field of international liberalization. At the same time, conflicts of interest connected to liberalization also became more emphatic - this involved not only different views of sectors and modes of supply but also concerns over providing certain services on a market basis. Thus the current round of WTO negotiations poses a difficult task for member states presuming that they want to achieve real advancement: rather than engaging in negotiations over particular services, they should aim to work out and apply general approach methods (or, possibly, liberalization "formulas") that are capable of significantly liberalizing the international trade in services while minimizing disadvantages (or at least reducing them to a politically acceptable level).

Külgazdaság 2003/1

Brief Summary of the Articles

All-round inquiry about the probable direct effects of joining the EU - part I

The optimal inflation rate for the eurozone and the structural reform of the ECB

VIKTOR BÁLINT

In the first part of the paper we examine the possibility of the modification of the EMU optimal inflation rate respect of the different productivity growth pattern of the member states. Regarding the current member economies we conclude that - despite of the differentials - no modifications are truly necessary because of its complications. Based mainly on the so-called Balassa-Samuelson effect we reached a point where lobbying for a modified medium-term inflation target could be reasonable for the aspirant eastern European countries. We show that with a slightly higher optimal inflation rate of the ECB these countries could be better off, they could optimize their disinflation and real-growth processes, conduce to reduce the highly problematic catch-up process. However we stress that behind the requirements of the EMU there are not only economic but political reasons, so the probability of such a correction in the inflation target is pint-sized.

In the second part we examine the future shape of the ECB, concluding that already its recent structure - with 18 decision making members body - is not so efficient to react the economic impulses, mainly because of the deeply rooted tensions of the member country's different interests. Beyond that it should be emphasized, that after the enlargement of the EU and EMU, the reform of the ECB's decision making system is inevitable, otherwise the newcomers could shape the monetary union for their own face. The paper examines three conceptions, and concludes that the delegated decision making process could be the way to follow in the future.

Essay on pension, pension systems, pension reform - I. Part

GYÖRGY NÉMETH

In the first part of his two-part paper the author provides an economics-theory definition of old-age pension where entitlement constitutes a central concept, together with the requirement that inevitable income redistribution actualised through the pension system should be as little as possible. The author argues that the traditional division of pension systems into pay-as-you-go and pre-funded systems is not relevant - it is more important whether the pension system is Defined Benefit or Defined Contribution in type. In the former case the problem is posed by the potential of a split between contributions paid and pensions received, whereas in the latter one, there is a close connection between the two. Those advocating funding as a solution to the pay-as-you-go pension systems fail to consider especially this, since they wish to make the connection between contributions and benefits strong. Funding is a solution to this inasmuch as it results in a Defined Contribution pension system. This situation emerged because of the fact that, as the result of the famous 1959 Samuelson-Lerner debate, the interpretation of the pay-as-you-go pension system has been closely connected to demography and a general agreement has developed that current benefits to be paid should be exclusively paid from current contributions. It has lead economic thinking about pension systems to a dead end. To prove this, the author introduces the concept of implicit state debt, which is not the same as the identically named concept known from the generational accounting methodology.

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