1. FDI-based development model in Hungary: new challenges? Miklós Szanyi Budapest University of Economics, and Hungarian Academy of Sciences

2. Starting statements 1. Capital-based world economic integration is a main tendency of development 2. FDI may bring benefits as well as risks. Crucial is the balance of the two 3. FDI attraction and other related policies may have significant effect on locational decisions and on tapping benefits.

3. Capital attraction in Hungary 1990-1998 1. Political and economic stability 2. Privatization 3. Fiscal and regulatory incentives 4. Geographic location – market access 5. Cheap (qualified) labor

4. Benefits of FDI 1990-1998 1. Restructuring (sectoral and corporate) 2. Cash revenue (internal and external deficits reduced, BoP) 3. World economic integration (export driven economy) 4. Technology and knowledge transfers 5. Spillover effects (?)

5. Risks of FDI 1990-1998 1. Footless industries (linkages) 2. Crowding out (markets) 3. Concentration (sales of monopolies + mergers) 4. Profit transfers

6. What changed? 1. Absorption capacity at current investment patterns and conditions exhausted - geographical concentration - increased labor costs - saturation (who wanted to invest already invested 2. Privatization is over 3. Incentive system was not EU-conform (tax holidays, free trade zone regulation)

9. Need for policy review 1. New targets - R and D - Regional development - Infrastructure - New, skill intensive activities 2. New incentive structure 3. National development plan to reduce bottlenecks

10. Conclusion: need for flexible FDI policy 1. Respond to changes in conditions 2. Support tapping new sources of benefits 3. °Invents° new tools of capital attraction