Beyond Manichean economics: foreign direct investment and growth in the transition from socialism

Using case study data from Hungary, this paper explores the developmental impact of foreign direct investment (FDI) in transition economies. A review of the debate on FDI is conducted by exploring the political discourse surrounding this issue in Hungary. The numerous and competitive purported mechanisms linking FDI with either economic growth or stagnation are used to analyze the case studies. This analysis reveals that FDI can take very different forms, with very different economic consequences. On balance, the evidence suggests that foreign direct investment has been very positive for the Hungarian economy. However, there exists the possibility that the current success of foreign owned firms will lead to socially detrimental market concentration or even hinder future growth.