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This study aims to scrutinise the external capital structure in Hungary from the 1970s to recent years. On the one hand, this paper uses a combined analysis of external debt and equity, and, on the other hand, it makes an effort to apply a couple of corporate finance principles to a macro-economic setting, attempting to test the corporate model on a national economy from the perspective of the sources and uses of global funds and their return. At the same time, the corporate analogue has its limitations.

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This paper examines the causes of turbulence in foreign exchange markets by looking closely at the experience of four transition economies (Bulgaria, Romania, Russia, Ukraine). It considers the influence of macroeconomic variables in currency crises occurrence through the use of logit models. In an environment of deteriorating fundamentals the examined issue is whether or not some fundamentals are able to maximise the likelihood of currency crisis incidence.

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Foreign direct investment and external debt in Hungary

An attempt to examine the macroeconomic capital structure from a new perspective

Society and Economy
Authors: Iván Bélyácz and Mónika Kuti

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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The aim of this study is to shed some light on the factors determining the investment decisions of Sovereign Wealth Funds. Using the financial data from companies listed on the Warsaw Stock Exchange, the author employs a logit model to analyse the probability that firms are targeted for investment by the Norwegian Sovereign Wealth Fund. These findings suggest that not only the growth of earnings per share increases the probability of such investment, but that also a company whose shares have been bought by the Government Pension Fund Global has, on average, a higher level of earnings per share than companies not targeted by the Fund. This study contributes to a deeper understanding of the investment activities of the world’s largest Sovereign Wealth Fund.

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Many papers have analyzed the effects of foreign acquisition on firm productivity, articulating its positive impacts. However, an important issue remains: is there a general foreign acquisition effect, or is there any heterogeneity in the effects? This paper reports on the analysis of over 3,400 majority foreign acquisitions in Hungary. The main result (which exists in a propensity score matching sample as well) of the difference-in-differences analysis is that only acquirers from higher income countries foster labor productivity significantly — and this effect increases with the income gap between Hungary and the country of origin -, while acquirers from lower income countries do not induce statistically significant effects.

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The Hungarian economy is highly integrated in global value chains (GVC). Upgrading within GVCs is a key factor of sustaining the initial developmental push GVC participation provides. The article concentrates on R&D-based upgrading opportunities and their practical implementation by multinationals’ Hungarian subsidiaries in the automotive and electronics sectors. The content and the development of R&D activities; Hungary’s locational advantages for R&D projects, and their local impact are analysed based on interviews with twenty foreign-owned companies in the two selected sectors. We show that local R&D units’ activity is multifaceted, though they feature similar upgrading trajectories. Investors’ motivations: the knowledge- and efficiency-seeking nature of their projects and the related locational advantages are examined. We demonstrate that local R&D-intensive subsidiaries have a limited local impact except for the intensive contacts with local universities — with varying content and motives on the side of the R&D units. Drawing on our findings we formulate economic policy recommendations about the ways to foster and enhance R&D-based upgrading.

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Acta Oeconomica
Authors: Marija Petrović-Ranđelović, Tamara Rađenović, Bojan Krstić, and Vladimir Mićić

Abstract

The purpose of this paper is to investigate the importance of human capital, as location determinant for the foreign direct investment (FDI) decisions in the Western Balkan Countries between 2008 and 2016. Apart from the human capital indicators, several location determinants were used as control variables. The hypothesis has been tested by employing correlation and regression analysis. The empirical findings revealed the positive impact of primary education and the negative impact of tertiary education on the inflows. The analysis showed that political stability and control of corruption are more important location determinants than human capital. Therefore, the policy measures should be directed towards the improvement of institutional framework and creating a supporting environment for the FDI inflows.

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Abstract

This paper is aimed at investigating determinants of recent flows of foreign direct investment (FDI) into advanced business services (ABS) in the European Union with the distinction between “old” (till 2004) and “new” member states (after 2004 extension). Special attention is put on the Visegrád countries. The factors affecting location decisions of multinational corporations were analysed at the national and regional level. The latter approach proved to be very effective due to the fact that foreign companies operating in ABS are highly unequally distributed across economies. Indeed, there are only few regions in economies attracting bulk of the operations in ABS.

The research method applied in the paper is negative binomial regression, which measures the probability of occurrence of an ABS foreign firm in an economy or a region taking into consideration its characteristics. This research combines macroeconomic, regional and firm-level data. The explanatory variables are divided into two groups: demand and supply. The main conclusion is the high significance of the supply factors. In other words, foreign companies focus on locations offering large number of skilled workers at reasonable prices. The key recommendation for governments interested in attracting ABS type of investment is to focus on the quality of human capital.

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Acta Oeconomica
Authors: Chih-Hai Yang, Mei-Chun Cheng, and Chun-Hung Lin

This study examines the determinants of China’s outward direct investment (ODI) between 2003 and 2009. We first analyse the structure and dynamics of ODI. We propose three testable hypotheses including technology sourcing, resource seeking, and political linkage. Various estimates show that technology sourcing is supported moderately, whereas resource seeking serves one of primary driving forces. Crucially, the motive of political linkage is significantly related to ODI and it is particularly relevant to developing destinations. This finding indicates that China tends to invest in developing countries with high political risk, which is in contrast with the prediction of the FDI theory. Furthermore, a developing country with high political risk seems to be the favoured destination for China’s ODI to acquire technologies and resources.

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There has been an increase in outward foreign direct investment (FDI) and in the number of locally-owned or controlled multinationals in the Czech Republic and Hungary. However, data problems hinder to determine accurately the underlying trends and the main factors behind the changes. Data on outward FDI contain investment realised by all locally operational firms, regardless of their ownership. We rely on newly available balance of payments manual 6 (BPM) data and on company case studies. We show that outward investment by Czech firms must be much higher than what balance of payments data show. Hungary's case is the opposite. The leading Czech and Hungarian foreign investor firms can be categorised as “virtual indirect” foreign investors: they are in majority foreign ownership, but under domestic control. The reason for this special type of firms dominating in outward foreign direct investments can be found in the privatisation technique applied in these countries during the transition process.

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