FDI should not increase the rate of inflation in Hungary. In fact, one of the challenges that Hungary will face will be controlling inflation. According to an essay published on the University of St. Andrews website, country that suffers from rising inflation loses out in terms of inflows of foreign direct investment. The reason is fairly simple; investors want a high rate of return on investment but high inflation rates distort their ROI and make foreign exchange and repatriation of profits more difficult (Sayek, 2000). Wu, X. (2001). Retrieved Feb. 20, 2005, from Impact of FDI on Relative Return to Skill Web site: http://www.unc.edu/~wux /wu-fdi-wage.pdf. Based on the slowdown in FDI described in Kristen Schweiser's article Losing Its Edge, one recommendation to the Competitiveness Council is that Hungary needs to join the EU as quickly as possible. The openness of a nation's economy has an impact on the amount of FDI it attracts. As an extreme example, North Korea's economy is closed to the world and it attracts essentially no FDI. In contrast, a significant percent of FDI occur between countries bound by regional trade agreements such as those that exist within the European Union. EU member countries tend to have more FDI originating from other EU countries than from other nations because of the ease with which investments can be made and profits repatriated. (b) The new Central European countries including Hungary admitted to the EU in 2004 recognize that the EU's decision to limit greenhouse gases in response to the Kyoto protocol imposes limitation on their economic growth by limiting the types of businesses these new members can open if they plan to meet their EU greenhouse gas reduction goals. In both the short term and the long term, reduction of greenhouse gas emissions places EU member nations, including Hungary, at a competitive disadvantage relative to countries including China, India and the United States that are not signatories to the K |
