László Halpern

Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues

In this paper we present an overview of a number of issues relating to the equilibrium exchange rates of transition economies of the former soviet bloc. In particular, we present a critical overview of the various methods available for calculating equilibrium exchange rates and discuss how useful they are likely to be for the transition economies. Amongst our findings is the result that the trend appreciation usually observed for the exchange rates of these economies is affected by factors other than the usual Balassa-Samuelson effect, such as the behaviour of the real exchange rate of the open sector and regulated prices. We then consider three main sources of uncertainty relating to the implementation of an equilibrium exchange rate model, namely: differences in the theoretical underpinnings; differences in the econometric estimation techniques; and differences relating to the time series and cross-sectional dimensions of the data. The ensuing three-dimensional space of real misalignments is probably a useful tool in determining the direction of a possible misalignment rather than its precise size.

Does Distance Matter in Spillover

Our aim in this paper is twofold: to find whether FDI causes horizontal or vertical productivity spillovers to domestically-owned Hungarian manufacturing firms, and to see if distance matters in spillovers. For this exercise we use a large panel of Hungarian firms and different panel models. Consistently with previous research, at the country level, we find positive vertical spillovers but no evidence of positive horizontal spillovers. By taking distance into consideration, however, we find positive horizontal spillovers for domestic firms close to foreign-owned firms. By constructing spillover measures weighted by distance, we find similar patterns. Our results underline the importance of labour market rigidity and the local nature of knowledge in the case of horizontal spillovers.

Equilibrium Exchange Rates in Central and Eastern Europe: A Meta-Regression Analysis

This paper analyses the ever-growing literature on equilibrium exchange rates in the new EU member states of Central and Eastern Europe in a quantitative manner using meta-regression analysis. The results indicate that the real misalignments reported in the literature are systematically influenced, inter alia, by the underlying theoretical concepts (Balassa-Samuelson effect, Behavioural Equilibrium Exchange Rate, Fundamental Equilibrium Exchange Rate) and by the econometric estimation methods. The important implication of these findings is that a systematic analysis is needed in terms of both alternative economic and econometric specifications to assess equilibrium exchange rates.

Efficiency and Market Share in Hungarian Corporate Sector

One of the major tasks facing a transition economy is to create the competitive environment of a properly functioning market economy. It is widely believed that competition has a positive effect on efficiency, but the theoretical and empirical support is quite scarce. The objective of this paper is to investigate the link between competition and efficiency for the Hungarian corporate sector during various phases of the transition process. We employ frontier production functions for exploring differences among groups of firms, and for identifying the typical adjustment process of each group separately throughout the transition period until 1997. Groups are defined according to industries, size, and ownership. The estimated production functions indicate a gradual improvement in efficiency and a shift from decreasing to increasing returns to scale due to a growing share of small firms entering higher returns regimes. Market share can be explained by the degree of internal and external competition and by the efficiency of the firm. Transitional recession in 1990-1 was followed by a fast consolidation period, with rapidly increasing firm level efficiency and improving returns to scale. This consolidation period ended in 1994-5, after that mean firm level efficiency only changed slowly. Massive investments largely increased the market share of the better performing firms and sectors, resulting in rapid economic growth. However, this economic growth may become vulnerable if productive efficiency fails to improve faster.

Innovation, Productivity and Exports: the Case of Hungary

This paper estimates the relationship between innovation and firm performance by using Community Innovation Survey data for Hungary. It exploits the possibility of linking the innovation data to ownership and disaggregated trade data. Innovative firms are more productive, more likely to trade and export more products to more countries. We also test for differences in innovative behaviour in high- and low-tech industries, and study whether domestic and foreign firms differ in this respect.

Firms' Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary

Under perfect competition and constant returns to scale, firms producing homogeneous products set their prices at their marginal costs which also equal their average costs. However, the departure from these standard assumptions has important implications with respects to the derived theoretical results and the validity of the related empirical analysis. In particular, monopolistic firms will charge a markup over their marginal costs. We show that firms??? markups tend to be directly associated with the employed production technology, more specifically with their returns to scale. Accordingly, we analyze the implications for the markup ratios from the incidence of non-constant returns to scale. We present quantitative results illustrating the effect of the returns to scale index on the firms??? price markups, as well as the relationship between the two indicators, on the basis of firm-level data for Bulgarian and Hungarian manufacturing firms.

Pricing to Firm: An Analysis of Firm- and Product-Level Import Prices

We use Hungarian Customs data on product-level imports and exports of manufacturing firms to document that the import price of a particular product varies substantially across buying firms. Importantly, we can relate the level of import prices to firm characteristics such as size, foreign ownership and market power. We develop a theory of ‘pricing to firm’ (PTF), where markups depend on the technology and competitive environment of the buyer. The predictions of the model are confirmed by the data: import prices are higher for firms with greater market power, and for intermediate inputs with a high share in material costs. We take account of the endogeneity of the buyers market power with respect to higher import prices. We show that even if unobserved cost heterogeneity within product categories is substantial, it is uncorrelated with our variables of interest. The magnitude of PTF is big: the standard deviation of price predicted by PTF is 21.5%.

Mark-ups in the Hungarian Corporate Sector

One of the major tasks facing a transition economy is to create the competitive environment of a properly functioning market economy. This paper attempts to analyze the relationship of market structure, market imperfections and corporate performance by mark-up pricing. There is clear evidence for the existence of such market imperfections. However, these imperfections cannot be attributed to one single factor. We develop a varying coefficient model for the relationship between the factors facilitating rent-collection and the sectoral mark-ups.

Equilibrium and Disequilibrium in a Disaggregated Classical Model

Between 1985 and 1989 we made an extensive investigation (Halpern and Molnar, 1985, 1989) of Brody’s well-known stationary model.1 Our aim was to analyze the structural relations of the Hungarian economy and to reveal the interindustry aspects of the development preferences of economic policy. We modelled the structural relations of the economy in such a way that the structure of equilibrium was simultaneously determined from the production-accumulation side and the price-income side, taking into account the most important consistency relations between these two sides. As a matter of fact, with the help of the flow and stock input matrices of interindustry relations we first determined the model’s equilibrium structure of prices and outputs. This ensured uniform accumulation to a fixed asset ratio, growth rate and profit rate by industries.

The effect of costs and subsidies on trade reorientation in Hungary (1981–1990)

Abstract Cost and subsidy driven adjustment processes have played a much more important role in the trade reorientation of the Hungarian economy than generally assumed. The link between export and overall profitability of export-oriented firms has tightened over the 1980s. Subsidies which had been used to compensate for export losses were largely eliminated and began to favour firms with profitable exports. In 1981–1984 a higher than average profit ratio of export-oriented firms can be explained by their better performance in dollar exports and in domestic sales. In 1985–1987 their profits from rouble and dollar exports were lower than the average of the corporate sector. After 1987 the profitability of dollar exports of export-oriented firms improved.