Development and Finance from issue 2009/4

Ádám Mészáros

Length of Supply Chains and Import Ratio

- Abstract -

JEL F-23, F-14

The positive effects of foreign direct investment on the host country are largely mitigated by the insular functioning of these companies and if they have minimal connections forward and backward in the chain. On the other hand, foreign companies which are more deeply integrated into the host country’s economy are able to generate stronger positive effects than enclave-type firms. In this context, backward-facing connections and supplier relations are of particular importance. Increasing supplier relations is deemed important even in analyses which are critical of the role of foreign capital. Becoming a supplier brings one of the most important advantages that is relevant for the purposes of this research, namely, a secure market (or partner). If the foreign partner chooses to engage a domestic supplier instead of a non-resident one, one important macroeconomic effect is that imports decrease. This paper analyses supplier relations in the domestic automobile industry from the perspective of their effect on Hungarian foreign trade. A micro-level analysis of supplier relations is an excellent instrument for answering the (essentially macro-level) questions above, and offers solutions to methodological issues analysed in detail later in this paper.

Ádám Mészáros, assistant professor (Corvinus University of Budapest)

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