LubyHungary - An Overview of Hungary's Transition...

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An Overview of Hungary’s Transition Experience By Matt Luby March 8, 2005 Economics 508 Note: Background is Hungarian flag, courtesy of CIA World Factbook
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    Background Hungary is located in Central Europe (see red box) Here is an expanded view of Central Europe, with Hungary highlighted Courtesy of www.sitesatlas.com Courtesy of CIA World Factbook
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    Background, continued Population: 10,375,000 (1990); 10,197,000 (2002);  9,300,000 (2015, projected).  Negative growth rate as population ages (65+ are 14.8% of  country in 2002, 17.4% in 2015 as projected by Human  Development Reports) 2003 GDP per capita: $14,572, ranked 39 th  in world Communist governments: Bela Kun, Hungarian Socialist  Republic, 1919; Hungarian People’s Republic, 1949-1989 Important anti-communist uprising in 1956 Interesting fact: Magyar is non-Indo-European
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    MAJOR MACRO INDICATORS MAJOR MACRO INDICATORS Year relative to first reform Real GDP growth Real wage growth Inflation FDI (% of GDP) -1 0.70% n/a 16.90% 0.60% 1990 0 -3.50% n/a 29.00% 0.90% 1 -11.90% -1.21% 34.20% 4.40% 2 -3.10% 1.10% 22.90% 4.00% 3 -0.60% 1.67% 22.50% 6.10% 1994 4 2.90% 1.84% 18.90% 2.80% 5 1.50% -6.15% 28.30% 10.90% 6 1.30% -1.56% 23.60% 5.20% 7 4.60% n/a 18.30% 4.90% 1998 8 4.90% n/a 14.20% 4.40%
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    MAJOR MACRO INDICATORS, CONTINUED MAJOR MACRO INDICATORS Year relative to first reform Real GDP Index Real wage index Price index -1 100 n/a 100 1990 0 97 100 128.9 1 85 98.8 174 2 82 99.9 214.1 3 82 101.6 262.2 1994 4 84 103.5 311.5 5 86 97.5 n/a 6 87 96 n/a 7 n/a n/a n/a 1998 8 n/a n/a n/a
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    Pre-democratic transition, phase I Hungary made extensive reforms under communism.    Called the New Economic Mechanism, first introduced in  1968.   High growth slowed beginning in 1972 External shocks (OPEC, etc) High rates of investment (30% of GDP) financed most growth  in mid-1970’s Money came from foreign banks and was used to fight  external shocks .   Origin of foreign debt problem (World Bank, 1; Bartlett, 55).
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    Pre-democratic transition, phase II Reforms accelerated in 1980’s Enterprise economic work partnership, 1982 Work subcontracted after hours Higher wages paid, firms more profitable, higher  productivity Called “hidden privatization” by Lavigne (36) Debt repayment Large foreign debts begin to be repaid with aid of  IMF, 1982
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    Pre-democratic Transition, cont. Price liberalization (“Only in Hungary did  liberalization reach significant proportions” Lavigne,  39) Significant decentralization of pricing 20% of CPI prices were centrally regulated, 1989 (Cottarelli  et al, 6) Decentralized labor contracts yield higher wages.
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This note was uploaded on 07/17/2008 for the course ECON 508 taught by Professor Fleisher during the Winter '06 term at Ohio State.

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LubyHungary - An Overview of Hungary's Transition...

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