Society and Economy
Volume/Issue:
Volume 31: Issue 2
Foreign direct investment and external debt in Hungary
An attempt to examine the macroeconomic capital structure from a new perspective
Authors:
Iván Bélyácz

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and
Mónika Kuti University of Pécs Pécs Hungary

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Pages:
211–234
Online Publication Date:
09 Dec 2009
Publication Date:
01 Dec 2009
Article Category:
Research Article
DOI:
https://doi.org/10.1556/socec.31.2009.2.4
Keywords:
foreign direct investment; external debt; macro-capital structure; F21; F34
Restricted access

This article comprises an examination of the basic macroeconomic capital structure from a corporate stand-point — based on capital structure theories and on an analytical framework of corporate finance. The ‘Trade-off Theory’ employed at the macro-level can be compared to the choice between the consumption-smoothing effect of external debt and the risk of bankruptcy, whilst the ‘Hierarchy Theory’ can be applied to the ‘pecking order’ of global capital flows. The ‘Free Cash Flow Theory’ emphasises the disciplining effect of external debt, significance of which has become more evident with the credit crisis and the IMF’s loan-package to Hungary. The macroeconomic capital structure shows that in respect to international investment, the debt-to-GDP ratio has been growing more rapidly over the last ten years, and due to the level of indebtedness, the conditions essential for sustainable development cannot survive. The authors attempt to show that this is the reason why an unbridgeable efficiency gap has appeared in the employment of external capital. Although domestic economic policy-makers are sure of their long-term ability to manage the ever-increasing external debt, it would be a mistake to overlook those macroeconomic anomalies which have brought about the widening of the efficiency gap.

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Society and Economy
Print ISSN:
1588-9726
Online ISSN:
1588-970X

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Society and Economy
Language English
Size B5
Year of
Foundation		 1972
Volumes
per Year		 1
Issues
per Year		 4
Founder Budapesti Corvinus Egyetem
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Address		 H-1093 Budapest, Hungary Fővám tér 8.
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ISSN 1588-9726 (Print)
ISSN 1588-970X (Online)

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