Budapest ANALYSIS Yesterday’s FDI Dependency Remains Today’s Reality The evolution of Hungary’s external trade, and the relevance of Germany since 1990 MÁTÉ VERES March 2018  In 1990 Hungary decided to employ the then prevailing model of economic transition from a state run economy to one based on market principles. It entailed mass privati­zations of previously state run companies and the opening up of its borders in front of international capital without much mitigation with regards to its destination and long term objectives.  Due to lack of domestic long term strategy and policies directed at creating technolo­gical and other forms of spill-overs for the Hungarian producers, the country’s eco­nomy soon became dualistic in nature: a relatively strong, productive and competitive foreign owned and a capital-poor non-competitive domestically-owned.  The former set up factories for assembly and service centres for their international operations, while the latter merely acted as suppliers for them. In the absence of in­ternationally competitive products the Hungarian economy soon became dependent of foreign investment, whereby the large majority of exports – and thereby internatio­nal trade – was carried out between local affiliates of multinationals and their headquarters in the form of intra-firm trade. This model persists to date.  German investments have from the outset dominated the manufacturing sector wit­hin the Hungarian economy and as a result the country has become its most import­ant trading partner, as well as source of capital investment within the country.