INSTITUTE FOR WORLD ECONOMICS HUNGARIAN ACADEMY OF SCIENCES REPORT ON ACTIVITIES 2002

INSTITUTE FOR WORLD ECONOMICS HUNGARIAN ACADEMY OF SCIENCES REPORT ON ACTIVITIES 2002 Budapest, 2003

INSTITUTE FOR WORLD ECONOMICS of the Hungarian Academy of Sciences REPORT ON ACTIVITIES 2002 Budapest, 2003 Institute for World Economics of the Hungarian Academy of Sciences H-1014 Budapest, Országház u. 30. Hungary P.O.Box 936, H-1535 Budapest, Hungary 224-6760, 224-6765 vki@vki.hu, www.vki.hu

Contents 1. OUTLINE OF THE INSTITUTE...5 1.1. OBJECTIVES...5 1.2. STRUCTURE...6 1.3. FINANCING...7 1.4. RESEARCH PRIORITIES...7 1.5. LIBRARY AND SCIENTIFIC INFORMATION SERVICE...9 1.6. PUBLICATION AND DISSEMINATION POLICIES...9 1.7. INTERNATIONAL CONTACTS...10 2. PRINCIPAL RESEARCH PROJECTS...12 2.1. Global Issues...12 2.2. EU Issues...15 2.3. The CEECs and Hungary...20 2.4. Selected Topics...27 3. MAJOR RESEARCH PROJECTS PREPARED FOR HUNGARIAN POLICY MAKERS...31 4. MAJOR PROJECTS IN PREPARATION FINANCED BY HUNGARIAN RESEARCH FUNDS...33 5. COORDINATION OF AND PARTICIPATION IN INTERNATIONAL PROJECTS...35 6. PUBLICATIONS...38 6.1. IWE PUBLICATIONS IN 2002...38 6.1.1. Working Papers (in English)...38 6.1.2. Kihívások ( Challenges in Hungarian)...39 6.1.3. Műhelytanulmányok ( Workshop Studies in Hungarian)...40 6.1.4. Vélemények, Kommentárok, Információk ('Opinions, Comments, Information' in Hungarian)...41 6.1.5. Joint Publications...45 6.1.6. Occasional Publications...45 6.2. PUBLICATIONS BY IWE STAFF MEMBERS IN 2002...46 7. LECTURES DELIVERED ABROAD OR AT INTERNATIONAL CONFERENCES HELD IN HUNGARY...68 8. INTERNATIONAL CONFERENCES ORGANIZED BY IWE IN 2002...80 9. STAFF MEMBERS' STAYS ABROAD DURING 2002...81 10. FOREIGN GUESTS AT IWE IN 2002...82 APPENDIX...86

Outline of the Institute 5 1. Outline of the Institute 1.1. Objectives The Institute for World Economics (IWE), as part of the Hungarian Academy of Sciences, carries out research and formulates policy recommendations on an objective, non-partisan basis, since its establishment in 1973 on the institutional background of the former Afro-Asian Research Centre founded in 1965, three years before the first wave of economic reform in Hungary. The Institute has become one of the major policy-oriented international research institutes and economic policy think tanks in Central Europe. Its main task is to study the underlying trends and factors behind global and regional economic developments and their present and future impact on the Hungarian economy. In addition, it sets out to contribute to international research through cooperation with top research institutes throughout the world. Because of its location, history and human and material resources, the IWE is particularly well placed to be a leading centre for research on the integration of Central and Eastern Europe into the global market economy. The change of political system in Hungary, the transition to a market economy as well as the coming enlargement of the European Union and new global challenges have greatly enhanced the importance of world economic research and altered the emphasis of it. The IWE sets out to give strategic support during this historic change of course: by drawing on the Institute's long experience and extensive and effective system of international connections to build up a reformulated programme of research, and by using the techniques of comparative economic analysis and interdisciplinary investigations. The Institute's research philosophy is based on the conviction that the transition to a market economy and the accession to the European Union are not an end in themselves but a means of shifting the Hungarian economy from the periphery towards the mainstream of global economic development. Central to this is the need to modernize, in view of Hungary's modest level of economic development by comparison with Western Europe. International comparisons of the path taken to modernization and the blind alleys to be avoided are being made, in order to identify the key areas in which the Hungarian economy has to catch up and the requirements and means for doing so. Moreover the transition to a market economy is taking place in an international, and particularly a European economic environment of unprecedented upheavals and a system of relations in the process of restructuring. Whereas, on the global scale, some of the other attempts to modernize in the more recent past took place within a stable, predictable system of international relations, the forecast in Hungary's case is that the international economic environment will be uncertain, or at least multidimensional. This country has to build up a system of economic relations that takes account of its comparative advantages against a background of a moving Europe itself undergoing adjustment. The criteria for choosing the IWE's research areas have been the medium-term demands of decisive importance in terms of the processes taking place in the world economy and the adjustment that Hungary must take, coupled with the comparative advantages offered by the Institute

6 Outline of the Institute itself. This is a pioneer undertaking for the future: instead of resting on short-term, ad hoc requirements, it is built on a long-term strategic demand that must be created in part by the Institute itself with the demand-oriented nature of its researches. This we see as the way to ensure that the IWE is a professionally respected, authoritative, influential, opinion-shaping institute. These objectives can be served by the Institute's present research staff as a whole. After the appreciable staff losses of the early nineties, the internationally reputed, competitive and highly experienced research team has been replenished with ambitious and productive young researchers. The funds, however limited, granted by the Hungarian Academy of Sciences guarantee the political independence, so providing one of the fundamental external conditions for scientific activity of a high standard. * In 2002, basic conditions for substantive research at IWE were able to rely on a consolidated financial background due in part to increasing cooperation with different government institutions. * IWE, in cooperation with other research institutes (largely belonging to the Academy of Sciences), undertook a coordinative function in developing a medium-term strategy of research priorities on European integration. * Cooperation with leading international and Western European economic institutions was further strengthened. * Demand for IWE's research output by leading Hungarian banks, companies and multinational firms located in Hungary grew substantially. * A special system of fellowships managed by the Academy of Sciences provided an opportunity to employ some young researchers and cover selected basic areas of research. * Interdisciplinary research network has strengthened as the Social Sciences Research Centre came into being in the framework of the consolidation programme of the Academy of Sciences. In the Centre IWE and several other legally and financially independent institutes cooperate concerning political, social, legal, and economic issues. 1.2. Structure The IWE had a research staff of 29 at the end of 2002, and an auxiliary, service staff of 22. As of January 1996, the executive structure was changed. Based on the experience of previous years and the accomplishment of the substantially enhanced research tasks recently, IWE has eliminated the traditional structure based on research centres. In fact, organization of the research activities has never been carried out in a rigid system. In contrast to many institutes, IWE has always stressed the importance of cross-working, and provided opportunity for its staff to become acquainted with research activities of other centres within the institute. To a substantial extent, growing domestic and international competitiveness of the research staff can be explained by this flexibility. From the beginning of 1996, IWE's internal structure is based on teams organized for special topics and purposes. As a result a research network was created, in which practically each staff member is both the director of one or more research teams and member of other teams, simultaneously. This approach is expected to make research even more efficient, to use available capacities better and deal with priority tasks from different angles. A Research Council created in 1996 and consisting of 11 staff members, including talented young researchers directs and supervises research activities. In selected areas of ensuring the infrastructure of efficient research, three commissions, each of which consists of three staff members, have been acting (acquisition of books, journals and documents, computerisation, publishing activities). Since early summer 1999 a managing director has also been acting who is responsible for internal and external contacts, communications and public relations.

Outline of the Institute 7 In order to appropriately cope with growing research commitments, to ensure the education and training of young researchers and to use financial resources more efficiently, a special external research work has been extended, as part of the long-term and deliberate strategy of IWE. 1.3. Financing The tasks laid down in its deed of foundation and the new demands made by the changes taking place in the world economic environment make it essential for the dominance of direct state funding in the Institute's finances to remain. This conclusion is also supported by the widespread international practice of financing institutions that conduct strategic research out of central funds as a way of ensuring a high standard of activity. While strategic research institutes are generally financed in 60 to 70% of their annual budget from central funds throughout the world, contrary tendencies prevailed in IWE's financial situation during 2002, as central funds were still limited to basic salaries and their non-wage labour costs. In 2002 IWE's total income amounted to HUF 239 mn (about USD 1.1 mn), of which slightly less than 56 per cent of IWE's total income was provided by the Hungarian Academy of Sciences. Other major income sources included research grants provided by Hungarian funds (3 per cent), various domestic sources (12 per cent), participation in international cooperation (6 per cent) and an overhang from fiscal year 2001 (23 per cent). Total expenditure reached HUF 212 mn (about USD 950,000), of which wages, income taxes and social security contributions accounted for almost 74 per cent. Additional major items of expenditure were other research supporting expenses (3 per cent) and communal services and maintenance (23 per cent). The stable and relatively favourable financial situation is the result of the high professional level of the Institute, the attractiveness and practical usefulness of its research results as well as the successful search for new resources. As a rare exception among other academic research institutes, IWE possesses a solid financial background for 2003, which enables it to carry out strategic policy-oriented research and cement longer-term development concepts during the coming years. 1.4. Research Priorities Research activities were characterised by 27 major projects during last year. Contrary to the ruling tendency of the 90s, there was a clear shift from shorter-term to longer-term research in the new decade, though it remained highly policy-oriented still. Eight principal research projects were finished during the year (out of which none of them had a duration of less than a year), and another eight projects were initiated in 2002. Similarly, eleven research projects started earlier and spread beyond 2002. Research is fundamentally carried out on two basic levels: regional (geographic) and functional. Almost all research projects combine these two approaches, while staff members have to specialise themselves on one regional and at least on one functional topic. Priority areas of research in 2002: (a) Global economic development and transformation sustainable development amid a system of terms under intensive world-market impacts; fundamental medium-term changes in the world economy and their impact on Hungary; interactions and human dimensions of global demographic, political, economic, technical and social transformation;

8 Outline of the Institute globalization and regionalization, with special reference to international capital and labour markets; relevant features and development trends of the new regionalism; role of the transnational companies in the shaping of a new global economic system; current issues of international trade and the role of WTO; interrelation between globalization and economic transformation; basic trends of consumption globally and in Central and Eastern Europe. (b) Economic developments in Europe, with special attention paid to the European Union and Eastern enlargement the development paths and modernization of selected European countries; relationship between community policies and different national policies; key integration processes in the European Union (common agricultural policy, economic and monetary union, experience of the Union's periphery with catching up, institutional reform, experience of ex-efta countries in the European Union, regional development, budgetary issues, developments in major EU member countries); the prospects for, conditions and costs of Eastern enlargement, and Hungary's preparation for full membership; main features of developmental integration and Eastern enlargement; interdependence between European integration and subregional cooperation; the major features of Germany's European policy at the beginning of the 21 st century. (c) Economic transformation in Central and Eastern Europe comparative analysis of the CEFTA countries; transformation and external trade relations, including the changing pattern of East-West division of labour; impact of foreign direct investment on the macro- and microeconomic performance of transforming countries; chances of regional cooperation; economic and political development in Southeast Europe; the accession of Hungarian agriculture and rural regions to the EU; Hungary's preparedness for EU accession in the field of infrastructure and services; Hungarian foreign trade structures in comparison with those of the EU; the structural transformation of Hungarian manufacturing industry. (d) New economic developments in the Asia-Pacific Region the lessons drawn from the Far Eastern economic development; Japan's decade-long stagnation or transformation rather than crisis; transformation patterns in China and Southeast Asia; the Chinese Diaspora and the chances of a Chinese Common Market ; constant and changing elements in the Japanese model of development; prospects of Korean Hungarian economic relations. (e) Other key research areas human development in Hungary; impact of socio-economic values on the pattern of development; possible scenarios of economic and social development in Latin America; micro-level adjustment and cooperation;

Outline of the Institute 9 the role of infrastructure and services in the modernization process; the role of clusters in regional development policy; the measuring of the efficiency impacts of foreign direct investment; sectoral studies. 1.5. Library and Scientific Information Service The IWE's library is a specialised scientific library with national scope. It contains one of Hungary's most important and most up-to-date collections of books, periodicals and statistics on international economic affairs. Since 2000 the library constitutes part of the United Library for Social Sciences together with the libraries of the Institute for Political Sciences, the Institute for Sociology, and the Institute for Minority Research. Through consistent and constant expansion of the IWE's international relations, about 70% of the books and periodicals, including most of the foreign books, have been acquired on exchange base. This is already the case with some publications of the World Bank, the IMF, the OECD and the EU. In addition, almost three-quarters of the annual increase in value of the stock is accounted for publications that arrive under exchanges schemes or as gifts. This remarkably high proportion by national standards ties in with the Institute's own publishing activity. The task of the Scientific Information Service is to obtain the information required for research work, examine it comprehensively, store it, make it available, and distribute the Institute's publications through the conduct of international publication exchanges. The enlarged library s stock contains more than 200,000 items (including 30,000 archives and 583 kinds of periodicals). Also, the establishment of a CD ROM databank was started and will be further developed in accordance with the financial possibilities of IWE. Last year the Institute was successful in creating the availability of publication distribution via e-mail among all its exchange partners who apply for it. (This may result in substantial savings of postage.) The library's cumulative catalogue can also be searched by the aid of Internet: www.etk.mtapti.hu On the WIIW's (Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for Comparative Economic Studies) request IWE has joined the WIIW's "Countdown" project and become its Hungarian coordinator. The project aims at collecting in a joint database the names of Central and East European experts working on the European Union, by indicating their activities and the particulars of published as well as unpublished works on the Union prepared in the Central and East European region, mainly in Hungary and available in the library of the Institute. For information about the library please contact our information service, telephone: (36-1) 224 6759. 1.6. Publication and Dissemination Policies In 2002, the publication policy of the IWE followed in the framework of substantial changes introduced in the early 90s. The new publication policy was justified by IWE's growing reputation at home and abroad, its scientific and economy-policy objectives, and not least its aim of influencing public opinion. Last year the series Trends in World Economy was not represented, unfortunately, while Working Papers, Kihívások (Challenges), and Műhelytanulmányok (Workshop Studies) appeared with 11, 10 and 6 issues, respectively.

10 Outline of the Institute The Working Papers series in English presents the best and internationally competitive products of research by IWE staff, primarily to the professional public abroad. Kihívások, in Hungarian, is designed to inform Hungarian economic policy-makers, members of Parliament, political parties and the broader professional public about current worldeconomic issues, their impact on Hungary and the economic policy measures proposed to be taken. Most of the articles provide clear, readable summaries of significant research work undertaken in the Institute. Műhelytanulmányok, also in Hungarian, presents comprehensive and in-depth analyses, mostly summary reports of major research projects carried out or coordinated by IWE staff members, for the professional community and students of economics in Hungary. In the autumn of 2000, a concise foreign-language series was started (Standpoints in English, Positions in French and Standpunkt in German) in order to disseminate the Institute's view on some economic questions of key importance in the global, European and regional context. Vélemények, Kommentárok, Információk (Opinions, Comments, Information) is an even more concise series launched late 200l in Hungarian, and meant for the professional public as well as a wider circle interested in domestic and global issues of the day. Thirty-six of these short notices appeared in 2002. Our Newsletter (Hírfutár), available only in Hungarian so far, is designed to inform the professional public about the ongoing activities at IWE. The Institute s restructured, new homepage on the Internet offers the possibility of interactive communication in addition to the regularly updated information about IWE (www.vki.hu). The publication activities were complemented by occasional volumes reproducing proceedings of high-level international conferences. In 2002, staff members published 79 contributions in foreign languages, including two books and 49 papers contained in books. Eighteen contributions appeared in international journals. In order to disseminate IWE's research findings to a broad interested public as well, the Institute regularly organises open conferences on relevant and topical global and European issues. Teaching represents an increasingly important activity of most staff members. Based on the basic research results and the fundamentally policy-oriented approach of IWE, we experience a rapidly growing need for dissemination on various levels. Staff members teach regularly in universities both in Hungary (Budapest and several universities in major towns) and abroad, while its director general is a visiting professor to the College of Europe, Bruges, Belgium and Natolin, Poland. (Last year he also lectured throughout the second semester at the Columbia University, New York.) 1.7. International Contacts The IWE's international relations have traditionally been very extensive, active and useful. In recent years, the institute has taken part in an average of ten to fifteen international research programmes a year, and organized about ten bilateral and international conferences annually. There is close cooperation with some 30 research institutes, scientific institutions and universities. Staff members travel abroad frequently, and the number of visiting foreign researchers almost reached 100 in 2002. In the same year, IWE was a member of five reputed international scientific bodies (the EADI, the ECSA, the IFIAS, the UNU, and the Centre for Our Common Future). Close collaboration has been built up with the most influential international agencies (the IMF, the World Bank, OECD, WTO, Unctad, Unesco, UNDP, Unido, Uncitral, CIPE, ECE, etc.). Several members of the Institute participate in international research projects. Similarly to recent years,

Outline of the Institute 11 in 2002 we were coordinators of and participants in several ACE projects. IWE has built up a special relationship with the World Bank and the Bertelsmann Foundation in launching new projects, and assumes a leading coordinating role both in research and dissemination of the findings. In 2002, staff members delivered 131 lectures in foreign languages in different parts of the world and at international seminars held in Hungary. Nine international conferences were organized in the past year. In addition, IWE's international network includes longer-term stays of its researchers abroad, work contracts of its staff in leading foreign institutes and international institutions. In 2002, staff members carried out research in such prestigious organizations as the World Bank (Washington), the Vienna Institute for Comparative Economic Studies (Vienna), the Heriot-Watt University (Edinburgh), or the Hamburg Europa Kolleg and Institut für Weltwirtschaft Kiel. The Institute's medium-term research concept envisages further significant development of its international relations with some alterations in their nature. The initiative hitherto was usually taken by the IWE, but the change of political and economic system has greatly increased the number of foreign research institutes and international organizations proposing cooperation to the IWE. In line with the main directions of Hungary's economic relations, IWE aims particularly to expand its relations with European countries, including the EU and CEFTA, the United States, Japan and the East and Southeast Asian area. The Institute has already become the centre in Central and Eastern Europe for studies of Japan and Southeast Asia, and a regular informal platform for Latin American ambassadors on Hungarian, European and Latin American issues. Extra attention is given to developing scientific ties with neighbouring countries, particularly through joint research projects, and by inviting economists from these countries in order to promote mutual understanding and the flow of information, while also reinforcing IWE's relations with leading international and Western institutions.

12 Principal Research Projects 2. Principal Research Projects 2.1. Global Issues 2.1.1. Knowledge, Growth and Globalisation; Science and Technology Policy as a Growth Factor in Smaller Economies (KNOGG) Project director: Mihály Simai Duration: 2002 2004 Summary: The KNOGG Thematic Network studies specific problems regarding science and technology policy in smaller European countries in the era of globalisation and regional integration. As a research project funded by the European Commission, it responds to the R&D Fifth Framework Programme's horizontal programme Improving Human Potential and the Socioeconomic Knowledge. The objective of the Network is to review experiences in successful small EU member states and candidate countries in regard to the role and potential of STI policies as driving forces of innovation and economic growth. Participants of KNOGG Thematic Network are comprised of leading national research and higher education institutes from small EU member countries (Finland, Ireland, Netherlands, Greece) and accession countries (Hungary and Slovenia). The Network s coordinator (VATT) and principal contractors organise national workshops and international conferences. The Network in 2002 produced three main reports and a number of country studies as background documents. During the year we also prepared three studies on Hungary. In the first one the concept of small states had to be defined, particularly in the context of science and technology policy, where traditional measures may not provide the most relevant indicators of the relative size of the state. In the second paper the technological capabilities and the innovation policy of Hungary has been analysed. In the focus of the country study was its potential for innovation, its ability to supply national technological needs from domestic sources, and its role in the global market as a supplier or purchaser of new products and processes as well as its relative international competitive position. In the third study the role of transnational corporations in the Hungarian R&D sector has been examined.

Principal Research Projects 13 2.1.2. Most Important Issues and Processes of the World System in the Early 21 st Century Project director: Mihály Simai Duration: 2002 2003 Summary: In the framework of this project the following studies have been made: (1) Civilisations, Civil Society and the Future of Global Security. (The Hungarian version of the paper was published in Magyar Tudomány. The English version was presented at the Convention of the Academic Council on the UN System, in June 2002 in Portugal.) (2) The Age of Global Transformations: New Challenges and Critical Trends of the Early 21 ST Century (The paper was presented at the annual meeting of the American International Studies Association, in March 2002 in New Orleans.The Hungarian version will appear in a volume by Aula) (3) The Geopolitics of Environmental Security (The study has been incorporated into the State of the World Future Report of 2002 by the American Council of the UN University) (4) The Global Agricultural Sector and the Hungarian Agriculture (in Hungarian) (The paper was presented at the Annual Conference of the Hungarian Statistical Association and appeared in the conference volume.) (5) Religions and the Main Global Churches in the Process of Globalization. (in Hungarian) (It will be published by Justicia and Pax)

14 Principal Research Projects 2.1.3. The State of the World Economy, the New Tendencies of Globalization, and Hungary after the Turn of the Millennium Project director: Participants: Péter Farkas Annamária Artner, Ágnes Bernek (ext.) Duration: 2000 2003 Summary: In 2002 in the framework of this project a research was completed on the interpretation of the world scale economic globalisation: history, dimensions, definition, hierarchical structures, differentiating and income redistributing mechanisms of world economy and its regional levels. A study was prepared on the regional structure of the world economy, based on the regional placing, investment and trade of transnational companies. One of the most important objectives of the research program is the analysis of the effects of globalisation on Hungary. For this reason a study was made on the effects of foreign investment (including mergers and acquisitions) on Hungary (on its foreign trade balance, company structure, employment, consumption). 2.1.4. The World Economic Environment of the Hungarian Agriculture in the First Decade of the 21 st Century Project director: Judit Kiss Participants: Miklós Somai, Zoltán Tiba Duration: 2000 2004 Summary: The main aims of the research are: to reveal and study the ongoing changes and main trends in world agriculture, in agricultural supply and demand, in world agricultural trade and its regulatios, and in the agricultural policy of Hungary s main partners in the first decade of the 21 st century; to draw conclusions from the analysed changes for the benefit of Hungarian agricultural policy, by determining its adjustment possibilities and the challenges it will have to face. The work concentrates on the following areas: * the expected changes of the EU s Common Agricultural Policy; * the changes of the world agricultural system and world agricultural markets; * the performance of the Central and Eastern European countries agriculture with special regard to the CEFTA and the post-soviet agriculture; * the agricultural policy of the USA and China; * the next WTO round and its implications for regulating world agricultural trade.

Principal Research Projects 15 2.2. EU Issues 2.2.1. Challenges of the Political, Economic and Juridical Culture for Hungary between 2000 2006, with Regard to the Succesful EU Integration and the Changes of the Internal Integration Rules in the European Union Project directors: András Inotai, Margit Rácz Participants: Staff members of the Institute for World Economics, the Insitutute for Political Studies, the Institute of History and the Institute for Legal Studies Duration: 2002 2004 Summary: Under the leadership of the Institute for World Economics, this large-scale project is based on the cooperation among four academic institutes, representing the political, legal, historical and economic aspects of Hungary s participation in the enlarging European Union. For the first time in the research activities on European integration in Hungary, such a multidisciplinary approach has been applied in order to identify not only the different impacts of and inputs into the European integration, but also to find multiplier factors which can contribute to designing the most appropriate integration strategy of Hungary for the first years of full membership. In 2002, the Institute for Political Studies Analyzed the socio-political development of four small and mainly less-developed EU member countries (Austria, Greece, Ireland, Portugal). The research focussed on the degree to which these countries were able or unable to make use of the new opportunities offered by membership. The level of efficient or inefficient approaches was explained on the basis of domestic political and social conditions. The Institute of History dealt with the politics of selected large Western European countries towards Central and Eastern Europe in the 20 th century. Special attention was paid to the strategic or tactical changes in these politics, influenced by domestic or international developments. In 2002, two major studies were prepared, covering the United Kingdom and Germany. The Institute for Legal Studies concentrated on the possibilities of reforming the institutional structure and the decision-making process in the enlarging European Union. Particular emphasis was given to the future of reinforced cooperation and to the areas of qualified majority voting, both of strategic importance in order to formulate an appropriate Hungarian policy. The backbone of the project has been represented by altogether 13 studies prepared in the Institute for World Economics. They covered various aspects of Hungary s agriculture facing membership, challenges and opportunities of small and medium-sized companies in the enlarging EU, the comparison of Hungary s level of preparation and adjustment capacity with those of selected Central European countries (Czech Republic, Slovakia and Slovenia), as well as the future of Europe in the light of the Convention. Attention

16 Principal Research Projects was called to several important policy measures, including (a) the quick and efficient establishment of the necessary institutions in the agricultural sector, (b) support to be provided to small and medium-sized companies in order to avoid their flight into the grey zone of economic activities, and (c) the outstanding importance of keeping and strengthening the locational advantages in the enhanced competition for foreign direct investment among Central and Eastern European countries which are supposed to become full-fledged members of the EU as of May 1 st, 2004. 2.2.2. Scenarios of EU Enlargement and the Hungarian National Development Plan Project director: András Inotai Participants: Annamária Artner, Zoltán Bassa, Kálmán Dezséri, Andrea Éltető, Tamás Novák, Margit Rácz Duration: 2001 2002 Summary: The fundamental background material looks at the various scenarios of the enlargement process and their likely consequences from a broad, all- European point of view. It emphasizes that the success of the enlargement process can only be ensured if it does not deteriorate the internal cohesion of the present Union, does not overburden the adjustment capacity of the new members and does not jeoparadize, not even temporarily, the European stability. The study outlines a feasible decade-long strategy for a gradual enlargement, against the politically motivated but extremely risky big bang approach. In the first months of 2002, different versions of the Hungarian National Development Plan will be elaborated, taking into account some key scenarios of the enlargement process.

Principal Research Projects 17 2.2.3. The Impact of European Integration and Enlargement on Regional Structural Change and Cohesion Project director: András Inotai Participants: Andrea Szalavetz, Tamás Szemlér Duration: 2002 2005 Summary: The overall scientific objective of the project is to identify and explain in a cross-country analysis the impact of European integration and enlargement on regional structural change and cohesion. In particular, the project will provide empirical evidence about the relationship between industrial location, regional specialisation and regional income per capita in the context of European integration and EU enlargement. On the basis of our empirical analysis we will predict the types of potential winning and losing regions in both the current EU member states and accession countries. The research results will help identify challenges and recommendations for the regional policy at the European, national and local levels. 2.2.4. Strategic Tasks before the European Union Project director: Margit Rácz Participants: Annamária Artner, András Bakács, Sándor Buzás, Kálmán Dezséri, Andrea Éltető, Klára Fóti, Judit Kiss, István Kőrösi, Miklós Somai, Miklós Szanyi, Tamás Szemlér, Gábor Túry, Krisztina Vida, Anna Wisniewski (ext.) Duration: 2001 2004 Summary: In 2002, the first phase of the interdisciplinary research work of four years was finished. In the Institute for World Economics, we dealt with the open questions of the EU and started to analyse the preparations of the Hungarian economy to accession. Regarding the former group of questions studies were written on the Convent, agricultural policy and its reform, the internal economic situation of the EU and the features of the global economic recession which started in the first years of this decade. Among the questions of the preparations of Hungary, we analysed, first of all, the corporate sector. In this context we prepared studies on the preparations of the SMEs as well as those of the multinational companies in Hungary. The studies, which were written in the Institute for Law, analysed the Treaty of Nice and the possibilities of the so-called reinforced co-operation. In the Institute for Political Sciences, the experiences of EU accession in small member sates were analysed. In the Institute for History, studies were written on the features and changes of some dominating big EU states (the UK and Germany) views on Central and Eastern Europe in the 20 th century.

18 Principal Research Projects 2.2.5. The European Union and Its Direct Neighbourhood beyond Enlargement Project director: Tamás Szemlér Participants: Tamás Novák, Tamás Szigetvári Duration: 2000 2005 Summary: The research focuses on three major topics: * The strategic choices of the European Union (EU) to formulate its future system of international political and economic relations. * Economic and political relations, traditions, present and future priorities of the EU with Central and Eastern Europe. * Economic and political relations, traditions, present and future priorities of the EU in the Mediterranean area. The objective of the research is to formulate a strategy on the basis of the ideas of the EU concerning its future economic and political role for the desirable development of the common future of the EU and its direct neighbourhood (the countries of Central and Eastern Europe and of the southern and eastern coasts of the Mediterranean Sea). 2.2.6. Hungary's Preparedness for EU Accession Project director: Éva Ehrlich Participants: Péter Bakonyi (ext.), Zsolt Berki (ext.), Zsolt Denke (ext.), Halászné, Erzsébet Sipos (ext.), Miklós Horváth (ext.), Sándor Kálnoki-Kiss (ext.), Imre Keleti (ext.), Zoltán Kazatsay (ext.), Gyula Lengyel (ext.), József Lovas (ext.), János Monigl (ext.), László Ruppert (ext.), Elemér Saslics (ext.), Ödön Skonda (ext.), Gyula Sallai (ext.), Iván Schmideg (ext.), László Szivi (ext.), András Timár (ext.), István Valkár (ext.), Miklós Varga (ext.), József Pálfalvi (ext.), Miklós Somai, Tamás Szigetvári Duration: 2002 2003 Summary: In 2002 a series of studies were completed under the title The Feasibility of Meeting EU Expectations by the Time of Hungary's Accession. During the year we examined five sectors: (1) transport including all its branches (rail and road transport of passangers and goods, combined transport of goods, logistic centres, urban public transport, inland navigation, air transport), (2) water management, (3) postal services, (4) info-telecommunications, (5) energy. 2.2.7. Hungarian Preparations for and Saxonian Experiences of the EU

Principal Research Projects 19 Project director: Margit Rácz Participants: Klára Fóri, Andrea Szalavetz, Tamás Szemlér Duration: 2001 2002 Summary: During this phase of the research work, a study was prepared on the preparations of Hungarian EU regions. In this study a particular emphasis was given to the problems of resource endowment of the regions. Another study was written on the Saxonian employment questions. In Saxony, the unemployment rate is about 20%, and the economic policy means have not proven to be efficient enough so far. A study was prepared on the German economic development regarding the feasibility and the lack of feasibility of simultaneous economic growth and financial stability. Our conclusion is that positive experience, which we may apply, cannot be found in the development of the German economy since the mid-1990s.

20 Principal Research Projects 2.3. The CEECs and Hungary 2.3.1. Central Europe in 2010 Project Director: Tamás Novák Participants: Beáta Szatmáry, Anna Wisniewski Duration: 1999 2003 Summary: The countries of Central Europe have gone through a very eventful transition period. Economic transformation in the region followed different strategies in the various countries. The objective of the research is to identify whether the significant differences that have developed between the countries are of a lasting character to the region, or a convergence will take place again. The team also tries to outline economic, political and sociological aspects of the potential future. 2.3.2. The Role of the Carpathian Euroregion in the Catching Up of the Participating Counties and Regions with Special Regard to the Innovation Relations Project director: Zsuzsa Ludvig Participants: András Jánki (ext.), István Süli-Zakar (ext.), Anna Wiesniewski Duration: 2000 2003 Summary: This project aimed at analysing the problems of the Carpathian Euroregion and the results already achieved. The following questions were raised: How has the Euroregion cooperation helped the participating counties and regions in their economic development and catching up? Has there any positive change been in the economic developmental position of the Euroregion member counties in Poland, the Ukraine, Slovakia, Romania or Hungary for the last 7 years, or, on the contrary, despite all the efforts within the Euroregion framework the peripheral position has remained steady? The short history, main activities and the structure of the Carpathian Euroregion were studied as well.

Principal Research Projects 21 2.3.3. New Tendencies of Foreign Direct Investment and the Transfer of Technology in Hungary Project Director: Péter Farkas Participant: Andrea Szalavetz Duration: 2002 2003 Summary: The effects of FDI on the transfer of technology and innovation were controversial in Hungary in the 90s. However, at the end of the decade more favourable tendencies were taking place. The project focuses on these. Case studies and their summaries have been prepared on the following subjects: * experiences of foreign companies that resumed R&D activities; * new R&D bases of transnational companies in Hungary; * R&D orders of transnational companies for Hungarian research centres; * utilisation of final Hungarian intellectual products; * technological effects of new subcontracting contracts. A study is being prepared investigating the effect of technological development on the structure of manufacturing industry in the world economy. The summary of the research program will also include the results of Hungarian technical literature.

22 Principal Research Projects 2.3.4. Changing the Export-Oriented Agricultural State Support System with Due Regard to International Obligations and Practice Project director: Judit Kiss Participants: Sándor Meisel, Miklós Somai, Gábor Udovecz (ext.) Duration: 2001 2002 Summary: This project set out to elaborate on the basis of international experience such a WTO and EU conform, efficient, transparent and flexible agricultural support system which can meet Hungary s international obligations. In achieving its main goals, the research concentrated on the following areas: * The main features (goals, means, financing) of the EU s export refund system with due regard to the reform of the Common Agricultural Policy and the next round of the WTO; the pre-conditions for establishing the Hungarian export support system in conformity with that of the EU s. * The EU s WTO obligations for decreasing export subsidies and their impact on Hungary s accession and export possibilities. * The agricultural policy of the world's largest agricultural exporter, namely that of the USA, with due regard to its export subsidy and export promotion policy, with special attention to hidden export subsidy methods. * The next WTO round and the issue of export subsidies; the positon of the three main agricultural exporter groups, the Cairns group, the USA and the EU in this question. * Hungary s WTO obligations concerning export subsidies, the impact of the termination of the waiver at the end of 2001 and the Hungarian position at the next WTO round; the main conditions for changing the Hungarian export subsidy system.

Principal Research Projects 23 2.3.5. How Can the Hungarian Agriculture Be Financed? Project director: Judit Kiss Duration: 2000 2003 Participants: Summary: András Bakács, István Kapronczai (ext.) Miklós Somai, Gábor Udovecz (ext.) The project assumed to reveal how can the Hungarian agriculture be financed by internal and external sources, how can the pressing shortage of capital be diminished and how can the sector be modernised and made competitive. In order to answer the above questions, the research work concentrates on the following areas: * The profitability and the self-financing capacity of agriculture with due regard to the performance of agricultural producers and input prices, the opening of the so-called agricultural scissors. * The possibilities of bank financing with special attention to the terms, the conditions of agricultural credits and the system of financing via commercial banks. * The role of state subsidies with due regard to budget constraints, WTO obligations and limitations, EU conformity and the requirements to change the subsidy system in a WTO and EU conform manner. Special attention has been paid to agricultural export subsidies as trade in agricultural products still plays a significant role in the Hungarian foreign trade balance. * The role of foreign capital in Hungarian agriculture with special attention to the huge (5 40-fold) difference between the Hungarian and the EU land prices and their future harmonization. * The impact of EU funds in financing Hungarian agriculture: the role of pre-accession funds, namely that of SAPARD, and the impact of agricultural subsidies (market measures, direct payments, rural development) in the post-accession phase.

24 Principal Research Projects 2.3.6. Internal and External Processes Affecting the Competitiveness of Hungarian Agriculture on the Eve of EU Accession Project director: Miklós Somai Duration: 2002 2003 Summary: One of the most delicate issues of Hungary s EU accession is agriculture. The main objectives of the project are to outline, as precisely as possible, the circumstances that will prevail in Hungary, the EU and the world economy at the time of the accession and to answer the following questions: What are the most probable scenarios for the future of CAP and the Doha Round? What challenges Hungarian producers will have to face and how they might be able to cope with them? How many will have to give up producing? How accession will affect the different sectors and the production structure? How many will be able to survive in animal husbandry? 2.3.7. Human Development Report for Hungary at the Turn of the Millennium Project director: Klára Fóti Participants: Klára Fóti, Gábor Fóti, Éva Havasi (ext.), Judit Monostori (ext.), József Nemes Nagy (ext.), Márta Záhonyi (ext.) Duration: 2001 2002 Summary: This was the fifth time the United Nations Development Programme (UNDP) has commissioned a country report on human development in Hungary. This time the Report focused on the issue of human poverty (taking into account the trends over the last ten years) under the title Towards Alleviating Human Poverty. Its structure is as follows: Overview 1. State of Human Development in Hungary 2. Human Poverty and Social Exclusion 3. Poverty and Welfare Benefits Towards Alleviating Human Poverty (concluding chapter) Appendix (statistical database, covering topics and indicators of human development) The Report will be available both in English and Hungarian.

Principal Research Projects 25 2.3.8. Domestic and International Trends in Consumption Project director: Duration: Summary: András Hernádi Continuously On the basis of the concept that consumption precedes and practically determines production, research was focused on whether Central-East European economies and societies, and especially Hungary, can have an identity and follow a model different from that of international trends. 2.3.9. Effects and Perspectives of Economic Cooperation of Visegrád Countries and of Their EU Integration Project director: Tamás Novák Participants: András Inotai, Andrea Szalavetz, Gábor Tury Duration: 2001 2002 Summary: The aims of the project are threefold. First, it aims at analyzing the economic development level of the Visegrád countries, including their macroeconomic performances, international competitiveness and structural transformation. Secondly, it tries to analyze the impacts of EU accession on different sectors of the economy. Thirdly, it makes policy proposals for elaborating an economic strategy in the pre-accession period. The project is financed by the Visegrád Fund. 2.3.10. The Stability Pact and Its Potential for Improving Hungarian Export Performance, and Capital and Services Exports into the Southeast European Region Project director: Tamás Novák Pariticipant: Zoltán Bassa Duration: 2001 2002 Summary: This project is financed by the Ministry for Foreign Affairs and is aimed at analyzing the impacts of the operation of the Pact on Hungarian export performance, including trade, services and capital flows. It also aims at elaborating strategies for the better utilization of the possibilities opened by the operation of the Pact.

26 Principal Research Projects 2.3.11. Changes in the Quality of Infrastructure and Services in Hungarian Regions and Major Cities in the Decade of Transition, 1990 2000 Project director: Éva Ehrlich Participants: Albert Faluvégi (ext.), Tamás Szigetvári Duration: 2001 2004 Summary: The first phase of the research included the surveying and demonstrating of models and methods for measuring competitiveness. We have elaborated a system of indices for gauging the development level of infrastructure in the regions and major settlements. The examination embraces the 19 counties of Hungary and the 9 cities with inhabitants more than 100,000. Data gained on the county and city levels are being aggregated on the level of the country's seven planning and statistical regions each. Besides some 50 macroeconomic indicators, in the field of infrastructure and services (transport, informatics and telecommunications, health care and medical equipment, housing, environmental features, education and culture, trade and tourism) approximately 120 data are being collected and processed for two years (1990 and 2000) so as to unveil changes in regional development level. By applying this great number of indicators, most of them natural (and with the help of a tried and tested method of synthesis), a multi-segmented regional investigation can also be carried out. This examination will involve such a new approach in revealing regional differences which investigates the causes of disparities and their change over time in groupings, according to the technological or social features of infrastructure. Furthermore, the indicators used in examining the counties and the major cities will render it possible to expose the differences within the regions, and between Budapest and the bigger settlements as well. Determining the changes that took place in the last decade may immediately be utilized in mitigating Hungarian regional disparities of infrastructural development level and obtaining EU funds already accessible for this purpose.