The determinants and impact of Foreign Direct Investments. An analysis of Hungary’s FDI inflow.

Abstract

Foreign Direct Investments occur when a multinational corporation, a company or an individual from one country invests in another country’s assets or takes an ownership stake in its companies. Countries compete to attract this kind of investment; since they often bring in valuable technologies, skills, and financial resources, contributing to national wealth. In this work, we will first analyse the leading reasons why some countries are able to attract more foreign direct investments than others, namely, which are the main determinants of the localization of FDI. Then, we will look into what expected effects we should observe in the host countries of this kind of investment. In the second chapter of this work, we will present an analysis of FDI inflows in Hungary. Firstly, we will investigate the determinants that attract or discourage the inflow of FDI in the Hungarian economy. Then, we will analyse the trend of Hungary's FDI inflows over the years. In addition, we will study the countries of origin and the sectorial nature of the FDI allocated in Hungary. In the final part of the work, we will inspect the effects of FDI inflows in Hungary. In doing this, we will study the trend of FDI inflows in relation to the Hungarian GDP dynamics, as well as to its international trade performances, and finally, the progression of its index of Economic Complexity. Finally, we will review the main incentives the Hungarian Government provides for attracting FDI.