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ABSTRACT. This article comprises an examination of the basic macro-economic capital structure from a corporate stand-point – based on capital structure theories and on an analytical framework of corporate finance. The ‘Trade-off Theory’ employed at macro-level can be compared to the choice between the consumption-smoothing effect of external debt and the risk of bankruptcy, whilst the ‘Hierarchy Theory’ can be applied to the ‘pecking order’ of global capital flows and the ‘Free Cash Flow Theory’ emphasizes the discipline of external debt, whose significance has become more evident with the credit crisis and the IMF’s loan-package to Hungary. The macro-economic capital structure shows that, in respect of international investment, the debt-to-GDP ratio has been growing more rapidly over the last ten years, and, due to the level of indebtedness, the conditions essential for sustainable development cannot survive. The authors attempt to show that this is the reason why an unbridgeable efficiency gap has appeared in the employment of external capital. Although domestic economic policy-makers are sure of their long-term ability to manage the ever-increasing external debt, it will be a mistake to overlook those macro-economic anomalies which have brought about this widening of the efficiency gap. pp. 7–31
JEL Codes: F21, F34

Keywords: foreign direct investment, external debt, macro-capital structure

How to cite: Bélyácz, Iván, and Mónika Kuti (2013), “Foreign Direct Investment and External Debt in Hungary: An Attempt to Examine the Macro-Economic Capital Structure from a New Perspective,” Journal of Self-Governance and Management Economics 1(3): 7–31.

IVÁN BÉLYÁCZ
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Faculty of Business and Economics
Institute of Business Studies
University of Pécs, Hungary
MÓNIKA KUTI
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Faculty of Business and Economics
Institute of Business Studies
University of Pécs, Hungary

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