The Choice of Dilemmas in Hungary's Transition: Westernization or Latin Americanization?

By Kovacs, Erzsebet; Kollar [*], Zoltan | International Advances in Economic Research, February 1999 | Go to article overview

The Choice of Dilemmas in Hungary's Transition: Westernization or Latin Americanization?


Kovacs, Erzsebet, Kollar [*], Zoltan, International Advances in Economic Research


This paper deals with Hungary on the basis of selected characteristics regarding European Union accession conditions. In most cases, there are no exact criteria which must be fulfilled. Therefore, the difference between the real and expected levels of performance cannot be measured. The chances for stabilization and growth, reintegration, or periphery are under investigation. This statistical analysis concentrates on the similarity between members of the European Union (and the Organization for Economic Cooperation and Development) and new applicants. The structural similarity and closeness can statistically prove economic success or failure. (JEL C10, P00)

Introduction

In the Copenhagen declaration of June 1993, the European Union (EU) offered membership to those former communist European countries that wished to join and that fulfilled certain political and economic criteria. This enlargement is the biggest challenge facing both the European Union and countries of central and eastern Europe. The goal of integrating the associated countries is widely shared. The question is when and how. Accession conditions should ensure that candidates share the same objectives as EU members, have similar democratic and market-oriented institutions, and converge to the western European income level [Crombrugghe et al., 1996, pp. 21].

The conditionality can introduce some competition between candidates on how best to satisfy these conditions. [1] The EU will review fulfillment of the criteria before accession by the first group of countries. It seems to be vitally important for countries in transition to measure their performance and compare themselves to EU members and other candidates.

Hungary became a member of the Organization for Economic Cooperation and Development (OECD) in 1995 and intends to join the EU. This decision underlines comparison with well developed European countries. At the same time, the Hungarian GNP per capita income level fits the upper-middle income group. This group contains several countries from Latin America (such as Mexico) and Korea (Republic) and is at the same income level [World Bank, 1996, pp. 188-9].

The process of transition means development in certain aspects. There are positive results in stabilizing the economy, significantly reducing the government deficit, and so on [World Bank, 1995, p. 136]. On the other hand, there is a widely used cliche in Hungary which states, "our country faces the danger of Latin-Americanization." This stresses the coexistence of a dual and wide black economy, deep social deviancy, corruption, extreme differences in income, and the possibility of peripherization [Kovacs-Kollar, 1997b, p. 23].

There are numerous aspects in analyzing the Hungarian transition process. Instead of comparing the situation with the previous one, comparing results to those of EU members is preferred. While previous research focused on taxation and government expenditure structure [Kovacs and Kollar, 1997a, p. 42], this paper deals with other selected characteristics concerning accession conditions. In most cases, there are no exact criteria that must be fulfilled. Therefore, the difference between the real and expected levels of performance cannot be measured. Instead of ranking countries according to one basic indicator, the existing relationship between the economic and social variables are taken into account. Based on the statistical similarity of EU members and new applicants, structural similarity and closeness can statistically prove economic success or failure.

Data and Methods

To meet the overall reliability, consistency, and comparability of data, reports from the OECD [1997], United Nations [1996], and World Bank [1994; 1995; 1996] are used as sources of data for multivariate statistical comparison based on the results of principal component analysis and hierarchical and nonhierarchical clustering. International comparison is frequently conducted on the basis of general economic indicators such as the GDP per capita. …

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