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Foreign investment and restructuring logo The penetration of the Hungarian economy by foreign economies is enormous. This paper addresses these questions: What explains an improvement in overall profitability of manufacturing activity beginning in 1992? Do firms with foreign participation contribute to higher employment or do they have a suppressing effect? Do these firms pay lower wage? Do privatized firms with foreign participation become active participants in international markets? Do they push the Hungarian economy towards specialization at the bottom of the value-added spectrum? Has Hungary become a dual economy, one side increasingly modern and efficient, and the other increasingly backward? After an introduction, Chapter 2 shows that Hungary's success in tapping foreign direct investments (FDI) has been due to privatization and overall liberalization rather than to special incentives to foreign investors. Chapter 3 identifies distinctive characteristics of firms with foreign participation in terms of employment, productivity, and profitability. Chapter 4 examines links between FDI-driven microeconomic restructuring and foreign trade effects including export growth, competitiveness in European Union (EU) markets, and integration into global production and distribution networks. Chapter 5 examines ""factor intensities"" of Hungary's restructuring as revealed in exports to EU markets. Chapter 6 addresses the question of ""duality"" as a result of FDI-led restructuring.

Publisher: World Bank

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