Katus László: Hungary in the Dual Monarchy 1867 - 1914 - East European Monographs 738. Atlantic Studies on Society Change 132. (New York, 2008)
8. The Hungarian Economy in the Era of Dualism - Capital Accumulation and Employment
203 The Hungarian Economy in the Era of Dualism In the second half of the nineteenth century, underdeveloped countries could relatively easily make up for their lack of production factors. A developing country would attract capital, savings, entrepreneurs, technical experts and skilled workers. Hungary’s import of capital was particularly significant in the years following the Compromise of 1867. In the first half of the period, most foreign capital entered the Hungarian financial system by means of government loans. From the 1880s onwards, a greater role in the mediation of capital import was played by fixed-interest-rate securities (bonds or mortgage bonds) issued by the largest domestic banks and placed on the international capital markets. A smaller amount of foreign capital arrived in the country through the purchase of shares in banks, railways and industrial companies. Securities issued in Hungary and placed on the international capital markets represented the main type of capital import. A secondary role was played by foreign entrepreneurs and companies when they founded new firms or subsidiaries in the country. One of the goals of government aid for industry was to encourage investment by foreign companies, by offering various benefits and concessions. In 1892, two thirds of securities issued in Hungary were placed abroad, half of those in Austria. But the proportion was the reverse for securities issued between 1892 and 1912: two thirds were placed in Hungary and only one third abroad. This is evidence of a significant strengthening of domestic capital accumulation during the second half of the era. At the turn of the century, Austria’s role in the provision of capital in Hungary declined. Its place was taken in part by domestic capital accumulation and in part by other foreign—above all German and French—capital. At the same time, there was a significant movement of Austrian capital investments from the government sector to private enterprise. Immediately prior to World War I, Hungary’s principal creditor was Germany: its investments in the Hungarian economy exceeded two billion crowns in 1913 (14 percent). France was the second-largest investor, with one billion crowns (7 percent). Other major creditors were the Netherlands, Great Britain and Switzerland, each with around 200 million crowns.16