Hungary's economic model: A case for preserving, not dismantling

Hungary's economic model, characterized by its openness to foreign investment, has been a strategic success, according to Molnár Dániel, lead analyst at the Hungarian Investment Promotion Agency. He argues that for a small, capital-scarce country like Hungary, seeking technological convergence, it was more rational to attract global companies than to reinvent technologies and global networks domestically.

These foreign investments often view Hungary as a gateway to Europe, with the primary goal being access to the wider European market rather than just the domestic one. If these opportunities were to close, Dániel suggests, such investments would likely relocate to neighboring countries or other competitors, diminishing job creation and growth dynamics within Hungary. The impact could ripple through the economy, affecting local suppliers and small and medium-sized enterprises, and potentially even influencing expansion plans of major international players like German automakers who have integrated Hungarian operations into their supply chains.

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Or, in other words, those investments that have come to Hungary so far would move to neighboring countries or other competitors in the future and would contribute to job creation and dynamism of growth there.

Sebestyén Géza further emphasizes that Hungary's choice to open its doors to foreign capital was the correct strategic decision. He posits that a small nation forced to catch up technologically could not have found a more rational path than directly importing the expertise, organizational knowledge, and global connections that leading international companies bring. The challenge now is not to debate the merits of "multinationals versus Hungarian companies," but rather to determine how much of the acquired and future knowledge can be retained within Hungary.

Evidence from countries like Costa Rica, which saw a 26% employment surplus and a 4-9% productivity advantage, and Norway, with a 20% employee knowledge effect, suggests that successful investment policies foster growth not only for foreign firms but also for domestic suppliers, engineers, research institutions, and independent Hungarian businesses. Therefore, Hungary's decision to open its gates and compete for investments, integrating into global production networks, was sound. The next critical task is to ensure that Hungarian businesses also grow stronger as a result.

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Hungary, therefore, did well to open its gates, compete for investments, and integrate into the production networks of multinational companies.