Inward FDI in Hungary and its policy context

In the 1990s, Hungary used to be a front-runner among Central and Eastern European countries in terms of attracting foreign direct investment (FDI). At that time, it attracted FDI both through the privatization of state-owned enterprises to foreign multinational enterprises (MNEs), and through Greenfield investment by foreign MNEs in export-oriented manufacturing (especially automotive and electronics). Almost two decades later, the economy is still a major host of FDI, with inflows of US$ 4.7 billion in 2011, although it has lost its privileged status within the region. Its policy approach to inward FDI (IFDI), too, has undergone changes over the past two decades: from being a country that was the first in Central and Eastern Europe to open its economy fully to FDI and offer incentives for it, it has moved to being one with more selective policies. The Government still successfully encourages FDI in export-oriented production (particularly automotive); however, in utilities, banking and retail, it has recently imposed windfall taxes, which mostly affect foreign players, indicating a less favorable stance toward them. This change in policy is in partly a result of the recent global financial and economic crisis, which has hit the country hard