Journal Article

Chips instead of peppers: Hungary's economy in the European division of labor

The article deals with the changing Hungarian trade patterns in the course of transition and integration into the European Union since the early nineties until EU full membership. Although Hungary is far from being a “Tiger economy”, Hungarian export-led growth has been sufficient to catch-up visibly with EU core members. The statistical analysis and a gravity model of Hungarian trade relations reveal that the country has been successfully integrated into the EU Common Market. However, the degree of integration with the other members varies substantially, notably for Hungarian exports. Germany is by far the dominant partner among the former EU-15 countries; furthermore, close trade relations exist with the Visegrad partners. The product mix of Hungarian trade flows also reflects the countries’ successful integration into international value-added chains. Apparently, Hungarian enterprises do no longer play the role of mere workbenches for labour-intensive standardized products. Instead, the analysis shows that the technology content of Hungarian trade has increased significantly, indicating the Hungarian participation in advanced European production networks. Particularly, in branches which attracted substantial amounts of foreign direct investment from Western Europe, Hungarian enterprises improved their competitive position in the technological hierarchy of European markets.