ICEG E uropean Center

1. ICEG European Center Hungary: Growth, Competitiveness and Innovation Pál Gáspár Budapest, 23 March, 2004 . Presentation at the World Bank organized Knowledge Economic Forum, Budapest, Hungary

2. The Structure of Presentation • Part I: Hungarian growth performance • Part II: FDI inflows and investments • Part III: Innovation, Competitiveness ICEG European Center, www.icegec.org

3. Part I. Growth Experiences and Challenges

4. Growth performance in regional comparison • Three stages of growth • a) transition recession(1990-1994), • b) fast recovery and sustainable growth (1995-2001), • slowdown in an unsustainable structure (2002-2003). ICEG European Center, www.icegec.org

5. The Demand Side of Growth • Exports and investments driven growth(1995-2001), • Growing synchronization of business cycles with EU and Germany, • External demand shocks and expansive demand management (2002-2003) ICEG European Center, www.icegec.org

6. The Supply Side of Growth • Export driven industrial production determines output growth, • Growth decomposition: unequal contribution of labor, capital and total factor productivity ICEG European Center, www.icegec.org

7. Some Experiences • Role of macroeconomic policies is crucial, • Real and financial openness are simultaneously advantage and challenge, • Supply side reforms are an engine of growth, while their absence a constraint (corporate sector vs. public sector), • old competitiveness advantages disappear fast or might become a constraint ICEG European Center, www.icegec.org

8. Growth Challenges • Balancing long-term benefits and short-term costs/adjustment needs of EU Accession, • Balancing the costs and benefits of EMU-accession and meeting the accession criteria, • Shifting economic growth from labor to human capital and technology intensive one, • Improving supply side factors of growth (labor and capital, human capital). ICEG European Center, www.icegec.org

9. PART II. FDI: Ups and Downs

10. Central and Eastern Europe: Small but Growing Part in global FDI Flows • While global and emerging market FDI flows decline , CEE represents growing share, • FDI inflows stable on regional but volatile on country level, • EU Accession: new opportunities ICEG European Center, www.icegec.org

11. FDI in Selected Accession Countries: The Flows... ICEG European Center, www.icegec.org

12. ….and the Stocks ICEG European Center, www.icegec.org

13. Factors behind high FDI inflows (1995-2001) • The privatization-liberalization-openness triangle, • Supply-side attractiveness, location, • Generous stimuli for FDI, • Positive and growing gap between productivity and real wage increases. ICEG European Center, www.icegec.org

14. The reasons behind declining FDI inflows (2002-2003) • Decline in privatization related FDI not compensated by greenfield inflows, • Absolute and relative losses in wage competitiveness, • Supply-side bottlenecks, • Declining attractiveness of FDI stimuli vis-a-vis other countries and domestic impediments, • Increasing FDI outflows from Hungary ICEG European Center, www.icegec.org

15. Future Issues • Reposition Hungary in shifting European production structure after Enlargement, • Accelerate the shift from labor to human capital, technology intensive investments and growth, • Adjust the supply-side bottlenecks (labor supply, education, infrastructure), • Strengthen the still weak horizontal and vertical links of FDI and local producers ICEG European Center, www.icegec.org

16. Part III. Competitiveness and Innovation

17. Growth Competitiveness Index(2003) ICEG European Center, www.icegec.org

18. Technology Index (2003) ICEG European Center, www.icegec.org

19. Selected Lisbon Indicators (2003) ICEG European Center, www.icegec.org

20. THANK YOU FOR YOUR ATTENTIONPÁL GÁSPÁRDirector14 Korompai Street H-1124 BudapestTel: +36-1-248-1160Fax: +36-1-248-1161E-mail: icegec@axelero.huWeb site : www.icegec.org