Transformations  in
Business & Economics

Real Determinants of Foreign Direct Investment: The Case of Hungary
Klára Katona

ABSTRACT. In the 90s, foreign direct investment played a determinant role in world economic development. However, in Central-Eastern Europe and especially in Hungary it was an integral part of the economic transition as well.

In this paper, using the results of the scientific researches concerning the determinants of FDI, I analyse how Hungary could attract investors into the country, and what the main determinant factors of FDI were in Hungary. My method is based on a regression model. The determinant factors examined were Growth of GDP, Population, Final Consumption (Market size), Volume of Import (Openness), Level of Privatisation, Taxation, Labour Cost, Labour skills. The paper shows that labour skills determined long term foreign investments in Hungary. In order to maintain the Hungary’s competitiveness in world capital markets, Hungarian economic policy has to support education and R&D activities.

KEYWORDS: foreign direct investment, labour costs, privatisation, income distribution, Central and Eastern European countries, Hungary.

JEL classification: P2, J3, E62, L33, D31.