Pierre-Alain Pionnier
OECD Economic Surveys: Hungary 2026
Abstract
Labour productivity in Hungary is lagging behind OECD peers and the gap between SMEs and larger firms is wider than elsewhere. Business dynamism is relatively low and could be supported by reducing costs for business creation and improving insolvency regulations. Reducing regulatory uncertainty and strengthening the fight against high perceived corruption would also improve the business environment for SMEs with limited legal expertise and connections. Financial constraints faced by Hungarian firms are above the EU average. Improving the credit registry, limiting the debt bias in corporate taxation, and creating public-private venture capital funds would reduce credit asymmetries and foster the development of non-bank financing for SMEs. While the government supports SME investment with subsidised interest rates and various broad-based subsidies, reinforcing targeting towards R&D and smaller firms would stimulate productivity and innovation in a more efficient way. Domestic SMEs contribute little to the significant exports generated by foreign-owned firms and would benefit from closer integration in GVCs. This calls for increasing the absorptive capacity of the domestic economy by fostering links between firms and education institutions, improving the transport infrastructure, and developing human capital, especially digital and management skills. Barriers to lifelong learning in SMEs could be alleviated by developing micro-credentials, encouraging the use of training leaves, and supporting the development of SME training networks.
Small and medium-sized enterprises (SMEs), defined as firms with less than 250 employees, account for 99.9% of all enterprises in Hungary, but only for 54% of value added. They tend to be smaller than their peers in other European countries (Figure 4.1).
Source: Eurostat (structural business statistics).
As in most OECD countries, Hungarian SMEs have a lower productivity than larger firms operating in the country, but the gap between large firms and those with less than 10 employees, representing more than 95% of all firms, is especially large in international comparison (Figure 4.2, Panel A). Closing this gap would help Hungary catch up more rapidly with OECD and regional peers. After declining for nearly a decade, Hungary’s relative labour productivity compared to OECD peers has restarted to increase since 2017 but only recovered in 2021 the level it had reached in 2011. Over this decade of interrupted catch-up with the OECD, Hungary’s productivity has also lost ground compared to Czechia, Poland and Slovakia (Figure 4.2, Panel B).
Note: Panel A features labour productivity defined as value added (at current prices and PPPs) divided by hours worked.
Source: OECD Compendium of Productivity Indicators (2025[1]).
This Chapter reviews the challenges that Hungarian SMEs are facing and discusses how the government can foster productivity growth among these firms. In many instances, these challenges are common to all firms, but alleviating them would disproportionately benefit SMEs because they may be less able than larger firms to cope with them.
The development of Hungarian SMEs is hampered by stringent product market regulations holding back business creations, and insolvency regulations slowing the reallocation of capital towards the most productive firms. This contributes to higher firm concentration and lower business dynamism than in other OECD countries. The business environment is also hampered by high perceived corruption, limited safeguards against undue influence, and regulatory uncertainty, which is especially harmful for SMEs with limited legal expertise and connections (Section 1).
Widespread loan subsidies and grants limit the financial constraints that Hungarian firms are facing. Nevertheless, empirical evidence shows that government investment support would be more effective with a stronger focus on R&D and smaller firms. Compared to neighbouring countries, Hungarian firms are more likely to face collateral constraints when they look for bank financing. The debt bias in the tax system and scarce venture capital also limit SME access to non-bank financing (Section 2).
While Hungary has a strong digital infrastructure, the digital adoption of SMEs is lagging behind larger firms and international peers. Relatively high telecommunication prices and limited digital skills are two potential explanations. Digital adoption by the government is also less advanced than in most OECD countries (Section 3).
In theory, the presence of leading international firms in Hungary provides a key opportunity for domestic SMEs to catch up and increase their productivity. Nevertheless, they rely little on foreign technology and their involvement in global value chains (GVCs) is limited. A large proportion of businesses in Hungary mention the inadequately educated workforce as the main obstacle hampering their development. Skill shortages are especially harmful for SMEs because larger and foreign-owned firms can more easily attract talents by paying higher wages. Beyond the initial education system that is covered in Chapter 3, adult learning has a key role to play to improve the situation, and several reforms would alleviate the time and cost constraints that workers and firms, especially SMEs, are facing to engage in workforce training (Section 4).
4.2.1. Product-market and insolvency regulations should become less restrictive
In many countries, the pressure of competition is the main motivation reported by firms, especially SMEs, for upgrading technologies (Cirera, Comin and Cruz, 2022, p. 144[2]). Empirical evidence also shows that increased competition, due to exchange rate developments giving a cost advantage to foreign firms, technological innovations facilitating comparisons across products and firms, or government interventions lowering entry barriers, leads to increased performance within incumbent firms. A large part of the positive aggregate effects of increased competition may also be related to reallocation effects towards more productive firms and the fact that the least efficient firms are driven out of the market. Over the last 20 years however, concentration and markups have risen faster in Hungary than elsewhere in Europe (Figure 4.3), which calls for boosting competition to support productivity.
Note: Panel A shows average concentration levels in Hungary and benchmark countries, measured by the ratio of the output of the four largest business groups to total output (CR4) in each market. Industries included in the analysis are a mix of 2 and 3-digit industries belonging to mining, manufacturing, utilities, and non-financial market services. They are classified as competing either at the domestic, European, or global level, according to the taxonomy defined in (Calligaris et al., 2024[3]). The benchmark countries are BEL, DEU, DNK, ESP, FIN, FRA, GBR, GRC, ITA, NOR, POL, PRT, SVN, and SWE for the domestic and European buckets, while JPN, KOR, and USA are also considered for the global bucket.
Panel B shows log changes of unweighted average markup across firms. Log-markups are set to 0 in 2004, and the vertical axis represents log-differences from 2004, which approximate percentage changes. Industries included cover all 3-digit industries belonging to mining, manufacturing, utilities, and non-financial market services sectors. The benchmark countries are AUT, BEL, BGR, CZE, DEU, DNK, ESP, EST, FIN, FRA, GBR, IRL, ITA, LUX, LVA, NLD, POL, PRT, ROU, SVK, SVN, and SWE.
Source: OECD calculations, based on (Calligaris et al., 2024[3]).
Product market regulations (PMRs) are more stringent in Hungary than the OECD average and have not improved recently. Relaxing these regulations would help increase competition and foster productivity (Figure 4.4). Two key areas for improvement concern administrative requirements for starting new businesses and regulatory barriers in the professional and retail sectors.
Note: Following a methodological update, 2018 results were recalculated according to the new methodology and are comparable to 2023 results.
Source: OECD Product Market Regulation (PMR) indicators; OECD calculations.
Creating a limited liability company (LLC) in Hungary requires completing 17 procedures and contacting six different bodies: a lawyer, the Company Registry Court, the Chamber of Commerce, the Company Gate, the National Tax and Customs Administration, and a bank. To set up a personally-owned enterprise (POE), there are 12 procedures at four different bodies. Even though each procedure can be completed online, there is no single website explaining all steps, nor allowing to accomplish them. Having a single website to accomplish all procedures, as in Greece, Ireland, New Zealand and Poland for POEs, would improve the situation.
In addition to burdensome administrative procedures, there is a minimum capital requirement to start a limited liability company in Hungary. Following a six-fold increase in 2017, this amount is the highest in the OECD and reaches HUF 3 million, representing 44% of GDP per capita. While this capital can be paid or deducted from future profits within two years of the company's registration, shareholders cannot receive any dividends until it has been fully paid, and they remain liable for their outstanding contribution to this required initial capital even if the company goes bankrupt. By contrast, 25 other OECD countries do not require any minimum capital to start a new business, or only a symbolic amount, such as one euro in Spain. Recent empirical evidence shows that the decision to lower the capital requirement to start a business in Norway in 2012 led to a significant increase in business creations, with no impact on the subsequent growth and survival of firms, nor on their profitability and productivity (Bacher et al., 2025[4]).
High regulatory barriers are also present in the professional and retail sectors. The number of regulated professions in Hungary (over 400) is the highest in the EU. For example, stringent regulations affect competition in legal professions such as lawyers and notaries. Moreover, an authorisation from a public body is needed to establish any retail outlet above 400m², and a law is in preparation to require authorisation renewals in case of ownership changes and permits for any internal space modifications within stores.
These administrative procedures, costs and regulations can be related to lower business creations in Hungary than in other OECD countries. This is especially the case for ICT and professional, scientific and technical services (Figure 4.5), which probably hampers digitalisation and technical progress, as new firms are more likely than incumbents to introduce radical innovations.
More generally, reducing regulatory uncertainty – and systematically involving stakeholders in the evaluation and drafting of new regulations – would improve the business environment and facilitate corporate investment planning. Over the last two decades, the number of decrees in force has been multiplied by five (European Commission, 2025, p. 9[5]). This makes it difficult for firms, especially SMEs with limited legal expertise, to keep up with existing regulations. Regulatory uncertainty is aggravated by limited stakeholder involvement in the regulatory process. While all primary laws and subordinate regulations are required to undergo regulatory impact assessment, both ex ante and ex post, public consultation is not required in the early stages of the regulatory process, ex-post evaluation is not systematically conducted, and some ministries lack the analytical capacity to conduct in-depth regulatory impact assessment (OECD, 2025[6]).
By facilitating the restructuring of weak firms, sound insolvency frameworks can support business dynamism and productivity, and contribute to a more efficient allocation of capital. This is especially important for Hungary, as low-productivity zombie firms immobilise a significant amount of capital that is not available for more productive and potentially financially constrained firms (Muraközy, Bisztray and Reizer, 2019[7]). As discussed in the previous Economic Survey (OECD, 2024[8]), following recent progress regarding the early detection and resolution of debt distress, Hungary’s insolvency framework could be further improved by allowing creditors to initiate debt restructuring, introducing simplified insolvency procedures for SMEs, and reducing the time of discharge for failed entrepreneurs. While an option to discharge failed entrepreneurs after three years was introduced in 2022, the actual average time of discharge is five years and can reach up to seven years, well above the OECD average. Addressing these points in the new law on insolvency proceedings that is currently in preparation will be key.
Simplified insolvency procedures for SMEs have been introduced in other OECD countries. Lighter procedures can increase incentives for SMEs with limited information and resources to apply for debt restructuring, thus limiting the deterioration of their assets. At the same time, these procedures need to account for the fact that the business and personal resources of entrepreneurs are frequently intertwined. Cheaper insolvency procedures would be especially relevant for Hungary, as costs to resolve liquidation and reorganisation proceedings are high in international comparison (World Bank, 2024[9]). The US Small Business Reorganisation Act of February 2020 introduced a specific insolvency procedure for SMEs with debt below a certain threshold. This procedure has lower costs and information requirements than standard (Chapter 11) bankruptcy procedures, involves a neutral adviser to help reach consensual restructuring, gives courts extensive power to impose agreements to dissenting creditors, and usually leaves debtors in control of the company. In Portugal, the intervention of a mediator to facilitate an agreement takes place in an out-of-court or hybrid procedure. In Japan, government subsidies are available to SMEs for lowering restructuring costs (André and Demmou, 2022[10]).
Sectoral birth rates compared to the OECD/EU average (2023, %)
Note: The OECD/EU average includes all EU countries that are also OECD members.
Source: Eurostat (Business demography statistics), OECD calculations.
In many cases, digitalisation can be used to facilitate filling, information exchange and asset sales. While electronic case management systems are used in insolvency procedures in Hungary, they are only partly available to business administrators, do not allow parties to follow the status of the insolvency proceeding, and are poorly interconnected with external tools such as e-filling systems (World Bank, 2024[9]). In these areas, further digitalisation would contribute to a more efficient administration of justice, and indirectly to a better allocation of capital resources and higher business productivity. This is a key area where a more digital government is needed (see below).
4.2.2. Improving the business environment by strengthening the fight against corruption
Limiting corruption is also key to maintain trust in institutions and support the business environment (OECD, 2017[11]). International indicators show that corruption in Hungary is perceived to be higher than in most OECD countries and that there is significant room to strengthen the control of corruption (Figure 4.6). While Hungary recently reinforced its anti-corruption framework with the creation of an Integrity Authority, the adoption of a new Strategy against Fraud and Corruption for EU funds in 2022, the introduction of a new National Anti-Corruption Strategy (NACS) in 2024, and a government decision (1010/2025) strengthening action against foreign bribery in 2025, fully implementing these reforms will be key.
Note: In Panel B, control of corruption captures perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests. Estimate gives the country's score on the aggregate indicator, in units of a standard normal distribution, i.e. ranging from approximately -2.5 to 2.5. The panel shows the point estimate and the margin of error. Panel D shows sector-based subcomponents of the “Control of Corruption” indicator by the Varieties of Democracy Project.
Source: Panel A: Transparency International; Panels B & C: World Bank, Worldwide Governance Indicators; Panel D: Varieties of Democracy Project, V-Dem Dataset v15.
According to the Integrity Authority itself, the Authority is facing significant barriers to accessing the required information (databases, personal records and company registries) to fulfil its mandate. Various state bodies owning such information consider that the 2022 Act that created the Integrity Authority does not grant it automatic access to information that is protected by previous legislation. In this context, the law should strictly limit the number of cases where confidentiality restrictions can be applied to the Integrity Authority, and ensure that the Integrity Authority has the required resources to guarantee the protection of all information, wherever it comes from.
In June 2026, the 2022 Act was significantly amended to expand the capacity of the Integrity Authority to verify asset declarations. The newly introduced verification procedure lifts previous confidentiality barriers allowing the Authority to request from public entities any data or information relevant to its investigations, as well as to directly access and process data protected as secrets (i.e. tax secrets, bank secrets or business secrets). The 2026 amendments further empower the Authority to conduct regular integrity risk assessments with a view to identify high-risk categories of officials that should be subject to asset disclosure obligations, considering the constitutional weight of the position or function held, as well as the degree of integrity risks related to it. Beyond the Authority’s capacities, the amendments expand the scope of declared information to include notably cash, any occasional remunerated activities, as well as any interests that may affect the performance of duties. This framework aims to capture a wider range of assets and financial interests, but also situations that may lead to perceived as conflicts of interest. At the same time, the amendments introduce a more robust enforcement regime by establishing criminal liability in case of violations of asset disclosure obligations.
A lack of clear safeguards on lobbying, post-public employment, and political finance can allow interest groups to influence agenda-setting and decision-making processes in their own interest (OECD, 2024[12]). This may allow large corporations to leverage financial resources to shape policy and regulatory discussions and give them an advantage compared to SMEs. While Hungary has committed to regulation on lobbying and post-public employment in 2025, legislation remains pending (European Commission, 2025[13]). The existing lobbying framework should be strengthened, including by expanding the scope to both the executive and legislative branches, with clear definitions of lobbying actors and lobbying activities. Transparency tools, such as a lobbying register, open agendas for ministers, and a beneficial ownership register, should also be adopted and made operational. Similarly, to mitigate influence risks associated with the revolving door, i.e. back-and-forth professional transitions between public and private sectors, Hungary should expand the scope of the existing fragmented legislation and ensure at-risk officials in both the legislative and executive branches are covered with proportionate post-public employment measures. There is currently no regulation establishing cooling-off periods for appointed public officials and senior civil servants. Within the broader set of legal and policy options aimed at promoting a level playing field and fairer competition, especially for SMEs, there is scope to further strengthen elements of the political finance framework. This includes clarifying and reinforcing restrictions on the use of public resources in favour of or against a political party (OECD, 2020, p. 228[14]), as well as considering the reintroduction of campaign spending limits for political parties, candidates and third parties, an approach regarded as good practice and applied in a number of OECD countries (OECD, 2024[12]).
4.2.3. Using public procurement as a tool to foster competition and support SMEs
Given the significant resources that the Hungarian government allocates to the purchase of goods and services, either for the functioning of the public sector or the provision of social transfers in kind (15.1% of GDP, above the OECD average of 12.7%) (OECD, 2025, p. 147[15]), public procurement has a key role to play to foster market competition, keep purchase prices as low as possible, and ensure that SMEs are adequately involved in the bidding process. Being recognised as public suppliers may in turn act as a quality assurance for SMEs and facilitate their integration in global value chains (see below).
Despite recent improvements, single bids represented around 23% of all bids in 2024. They were especially frequent for IT services, medical and transport equipment, and industrial machinery (OECD, 2024[16]). This can be related to the fact that firms find it difficult to meet the administrative requirements to participate in public tenders in Hungary (World Bank, 2024[9]). As part of the remedial measures to access suspended EU funds (Chapter 1), Hungary has committed to reduce the proportion of single-bid procedures to 15%. While SMEs are more likely to award public contracts in Hungary than in the EU as a whole (European Commission, 2024[17]), reaching this ambitious target will require involving even more SMEs in public procurement.
Market engagement, procurement planning and specific trainings can support knowledge diffusion about public tendering procedures and medium-term needs of the public sector, make public buyers better aware of private sector constraints, and attract potential new suppliers, in particular SMEs which are more likely than larger firms to lack information. As an example of market engagement, the US General Service Administration (GSA) organises annual matchmaking events where businesses receive insights on government procurement processes and can engage with procurement officials (GSA, 2023[18]). In addition, procurement planning can increase visibility on upcoming tenders and the number of contenders. According to a 2025 amendment to the 2015 Public Procurement Law, central purchasing bodies in Hungary are obliged to prepare procurement plans, but contracting authorities always have the opportunity to launch unplanned calls for tender and modify procurement plans ex post, thus leaving potential suppliers uninformed.
Mandating all public bodies to amend procurement plans first and to publish the amended version online would improve the situation (OECD, 2024[16]). Based on international experience, other measures to encourage SMEs to participate in public calls for tender which could be implemented in Hungary include the creation of specific procurement units dedicated to SMEs at the central government level, and having specific payment arrangements, as in Korea where SMEs are entitled to upfront payments of up to 70% of the value of government contracts and in the UK where the government aims to pay 90% of undisputed SME invoices within five days. As part of its 2023-26 action plan to increase competition in public procurement, Hungary recently developed free online training courses to facilitate the participation in public calls for tender, which is a welcome step. Looking ahead, it will be important to evaluate the usefulness of the available courses, assess how to further improve them, and increase their visibility.
Around 10% of Hungarian firms reported to be financially constrained in 2023, slightly above the EU average of 6.8% (Figure 4.7, Panel A). Financial constraints are only ranked third by Hungarian firms among the factors limiting investment in the economic environment of end-2025. Insufficient demand and labour shortages are considered more significant (Central Bank of Hungary (MNB), 2024, p. 26[19]). Nevertheless, financial constraints are probably a bigger issue for SMEs than for average firms because they are more likely to face credit restrictions due to information asymmetries between lenders and borrowers. Well-developed financial markets are key to provide SMEs with the liquidity they need to develop new products, invest in technology upgrading, export, and meet the quality and flexibility requirements expected by multinational enterprises from their suppliers (see below).
4.3.1. Improving information on the creditworthiness of firms
Hungarian firms looking for external financing are less likely to report issues related to high interest rates than their European peers, but a larger proportion of them are facing issues related to insufficient collateral or guarantee (Figure 4.7, Panel B). While the share of Hungarian firms facing too high interest rates has increased over the last years, as monetary policy tightened to respond to higher inflation, this increase has been more limited than in neighbouring countries and the EU as a whole despite a stronger increase in base interest rates by the Hungarian Central Bank. This can be related to the government decision to provide reduced interest rate loans to SMEs and to cap variable interest rates on SME loans while Central Bank interest rates were at their highest level (Box 4.1).
Insufficient collateral or guarantees are typical issues that SMEs are facing in all countries, especially those with a short business history and those largely relying on intangible capital, due to the difficulty for banks to price it. Bank access to borrowers’ credit information is key to overcome information asymmetries. Such information is a public good, benefitting the financial system as a whole, and the government should ensure that it is available to all credit institutions. The Hungarian financial system is well equipped to identify money laundering risks related to new customers and to keep track of property rights over tangible and intangible assets. It also has clear and transparent rules that determine the priority system for creditors in case of loan default. However, maintaining centralised credit information on households and firms seems relatively burdensome for financial institutions. In particular, online updates of the credit registry are not possible, all updates require the approval of a third party, and no automated verification procedure is in place (World Bank, 2024[9]). Moreover, the credit registry can only be consulted by banks and does not include any information on cross-border credits, nor on the timeliness of rental payments, payments to retailers and utility companies, and tax payments. Improvements along these lines would help reduce information asymmetries and ease SME financial constraints.
As financial literacy contributes to better economic decisions (Lusardi and Mitchell, 2014[20]), being able to evaluate the financial skills of SME managers would also reduce the uncertainty for banks. Training courses and a certification system could be developed by banks and chambers of commerce, thus allowing to identify SMEs with certified managers in the Hungarian credit registry.
Note: In Panel A, financially constrained firms include those dissatisfied with the amount of finance obtained, those that sought external finance but did not receive it, and those who did not seek external finance because they thought borrowing costs would be too high or that they would be turned down. In Panel B, data are based on answers to the question: “If you need external financing to realise your growth ambitions, what do you see as the most important limiting factor to get this financing?”. “Czechia, Poland and Slovakia” is an unweighted average of the responses for these three countries.
Source: Panel A: European Investment Bank - EIB Investment Survey (2024 wave, relating to 2023). Panel B: European Commission - Survey on Access to Finance of Enterprises (SAFE Survey, 2024 wave).
4.3.2. Reinforcing the targeting of government support towards small innovative firms
Any government intervention to alleviate financial constraints that goes beyond limiting information asymmetries between potential creditors and firms, such as providing public credit guarantees and subsidised loans, exposes public authorities to the same financial risks as private creditors. Taking more risks than the private sector may be justified if the social return of the financed investments exceeds their private return, e.g. when investments contribute to innovation, in which case private financing is below what is socially optimal due to positive externalities. Nevertheless, public intervention should target cases where the investments underfinanced by the private sector have the highest social return, and where financial constraints are most likely.
Subsidised loans and grants represent a very significant source of financing for Hungarian firms, especially SMEs (Box 4.1). The share of subsidised loans in the overall stock of SME loans has nearly tripled since the pandemic, from 19% in early 2020 to 49% in 2025Q3. Over this period, the stock of market loans to SMEs has stalled while the stock of subsidised loans has increased rapidly (Figure 4.8, Panel A). In addition, 37% of Hungarian firms resorting to external finance receive grants, well above the EU average (Figure 4.8, Panel B). In this context, it is important to avoid that subsidised loans and grants go to firms that would have accessed financing and invested anyway.
Providing subsidies to reduce the interest rate paid by firms on commercial loans is unlikely to alleviate financial constraints resulting from information asymmetries and credit rationing. Credit rationing occurs when banks find it difficult to estimate credit risks or when firms have insufficient collateral to compensate for these risks. In such cases, raising interest rates above a certain threshold is not optimal for banks because the proportion of high-risk firms taking up credits increases with interest rates, thus raising the probability of default. At the chosen threshold, credit demand is higher than credit supply, explaining why there is credit rationing (Stiglitz and Weiss, 1981[21]). In this case, firms with more collateral or less information asymmetry are given priority. Providing subsidies to firms to reduce their interest payments will amplify the gap between demand and supply but is unlikely to change the overall amount of distributed credit. As a result, the government may end up paying part of the credits that would have been distributed anyway. Therefore, the impact of the Széchenyi Card Programme (Box 4.1) is unclear. Any decision to further extend this Programme should be based on a rigorous statistical evaluation analysing whether it has any impact on the volume of distributed credit to SMEs, and whether they actually use it to invest.
Note: Panel A focuses on SMEs. In Panel B, the share of firms with finance from grants is calculated as a proportion of firms using external finance. This includes SMEs and larger firms.
Source: Panel A: (Central Bank of Hungary (MNB), 2025, p. 23[22]). Panel B: EIB Investment Survey (2024 wave, relating to 2023).
By providing credit guarantees, public loans, grants and tax credits, the government may have a more direct influence on how financing is allocated across firms, and how they spend it, than with broad-based interest rate reductions, but to ensure that such interventions improve upon market mechanisms, targeting areas with positive externalities and constantly monitoring efficiency is key. The fact that most support in the Demján Sándor Programme is distributed until planned budgets are exhausted, thus creating a discontinuity between comparable firms who receive support and those who do not, is especially convenient for statistical evaluations (Cingano et al., 2023[23]). As for the Széchenyi Card Programme, such evaluations should focus on the volume of distributed credit to SMEs and larger firms, and how they use it.
Evaluations of past EU subsidies to support the investment of Hungarian SMEs show that such subsidies had a positive impact on capital investment, employment and output, but their impact on total factor productivity was negligible. This means that supported firms expanded their productive capacity but did not upgrade their technology (Banai et al., 2020[24]) (Muraközy and Telegdy, 2023[25]). Similar effects were obtained for EU investment subsidies in the UK, with most impact concentrated on SMEs with less than 50 employees (Criscuolo et al., 2019[26]). General investment subsidies may thus be considered relevant for supporting economic activity in disadvantaged regions or in times of economic distress, but other instruments seem more effective to support innovation and long-term productivity. Moreover, supporting smaller SMEs may be more cost-efficient.
Grants and tax credits on R&D are more likely to support productivity and longer-term economic development. Most empirical evaluations in OECD countries find direct positive effects of both instruments on R&D spending and patenting, and even indirect positive effects on firms that are connected to policy-benefitting firms. The estimated impact is usually larger for SMEs, possibly because they are financially constrained (Becker, 2015[27]) (Dechezleprêtre et al., 2023[28]). The design of R&D tax credits is an important factor to understand their impact on SMEs. Refundable R&D tax credits are expected to be more effective than pure tax credits, even if they can be carried forward (Agrawal, Rosell and Simcoe, 2020[29]). Based on this evidence, and after careful evaluation of the existing grants and tax credits on R&D, Hungary should consider refocusing its R&D support towards SMEs and allowing R&D tax credits to be converted into cash or redeemed against other taxes when they exceed corporate tax liabilities. This would support R&D and innovation by Hungarian firms, which are significantly lagging behind OECD peers along these two dimensions (Figure 4.9). As a step in this direction, the John von Neumann Programme has recently refocused research and innovation grants around three target groups of firms: export-oriented firms investing in technological projects jointly with research institutions, innovative startups, and SMEs investing in business process innovation.
Note: In Panel B, an innovation is defined as a new or improved product or business process (or combination thereof) that differs significantly from the unit’s previous products or business processes and that has been made available to potential users (product) or brought into use by the enterprise (business process).
Source: Panel A: OECD Main Science and Technology Indicators; Panel B: Eurostat Community Innovation Survey (2022).
Capped interest rate loans (SMEs)
Variable-interest rate forint-denominated SME loans which were supposed to be revised underwent interest rate caps from November 2022 until April 2024. The related costs were borne by banks.
The Demján Sándor Programme to support investment (SMEs)
In October 2024, the Government launched the Demján Sándor Programme to stimulate investment by SMEs. This programme groups together various domestic initiatives, some of which existed before, and channels EU funds to support Hungarian SMEs (Table 4.1).
Note: Budget expressed as a percentage of the 2024 GDP. The Széchenyi Card Programme was first launched in 2002. It has been updated several times since then and is now part of the Demján Sándor Programme.
Source: (Central Bank of Hungary (MNB), 2025, pp. 28-29[22]), Government of Hungary
Additional support (all firms)
Subsidised loans and public credit guarantees were granted to all firms during the COVID-19 pandemic and are progressively expiring. Following the outbreak of the war in Ukraine in 2022, EUR 3.25 billion of subsidised loans and public credit guarantees were also granted without any business size threshold.
Beyond such temporary support measures, grants and tax incentives are available for foreign firms investing above a certain threshold in Hungary, and to all firms investing in “free enterprise zones”.
Specific support to R&D (all firms)
Specific support mechanisms to R&D, funded by the Hungarian government or the EU, are also available:
R&D corporate and local tax credits. All companies (not only SMEs) can claim a corporate tax credit equal to 10% of eligible R&D costs (mainly depreciation of tangible assets used for R&D, personnel costs, patent costs, and operating expenses). If the credit exceeds the corporate tax liability, the unused portion can be carried forward. Similarly, certain R&D expenses can reduce the local business tax or innovation contribution.
Development tax credit: aimed at investment in R&D-related infrastructure or investment projects.
VIP cash grants. Medium and large enterprises can apply for grants for setting up or expanding R&D activities. These grants may cover up to 70% of eligible costs depending on the location, type and size of firms.
International R&D collaboration programmes. Hungarian firms can participate in international R&D consortia and receive support through national contribution calls. The EU EUROSTARS Programme specifically supports innovative SMEs to collaborate internationally on near-market R&D projects.
4.3.3. Developing non-bank capital financing
Equity investors, especially venture capital investors, may be better placed than banks to assess the risks of innovative projects and finance them. For venture capitalists, this may be related to their deeper knowledge of specific innovations and market segments, their involvement in strategic and management recruitment decisions, and their intermediation role between firms and potential customers and suppliers (Admati and Pfleiderer, 1994[30]). Nevertheless, the stock market capitalisation is relatively limited and venture capital investment is underdeveloped in Hungary (Figure 4.10, Panel A). As a result, corporate investment financing mainly relies on banks.
Note: Panel B: data for Israel refer to 2024.
Source: Panel A: ECB Outstanding amounts of listed shares; Panel B: OECD Venture capital investments (market statistics) dataset.
A potential barrier to the development of equity markets is the debt bias in the corporate tax system. As in many OECD countries, Hungarian firms may deduct interest paid on business-related loans from the corporate tax base, up to 30% of their EBITDA or HUF 940 million (EUR 2.4 million), whichever is higher. In practice, this means full deductibility of interest payments for most SMEs. As equity financing is not deductible, this biases investment financing towards debt financing. Hungary has started to address this issue by creating a specific tax regime (KIVA) for firms with less than 100 employees and HUF 6 billion (EUR 15.4 million) of revenue which taxes profits on a cash-flow basis and thus remains neutral regarding sources of investment financing. Hungary could reduce the debt bias in corporate taxation more systematically by lowering the limit for interest payment deduction, and/or introducing a similar treatment for equity financing (as in Belgium, Italy, Latvia and Portugal) (Demmou and Franco, 2021[31]). Admittedly, the development of the Hungarian capital market also depends on further progress with the EU Capital Market Union, which is expected to reduce home bias in European equity investments and facilitate the development of equity markets in the EU.
To support the development of venture capital investment in the most efficient way, the government should co-invest with private partners. Several venture capital investment structures involving public or EU funds have been created in Hungary, sometimes with private managers, but they do not involve private funds. Autonomous structures managing a mix of public and private funds should be created, with public and private managers working on an equal footing, and no interference of the government in the allocation of funds beyond the initial selection of private investment partners. New Zealand and especially Israel provide two successful examples where this model has been initiated in the 1990s and has led to the development of significant venture capital investments (Lerner, 2010[32]) (Figure 4.10, Panel B). The SEED co-investment fund, launched in 2026 with a budget of HUF 10 billion (EUR 25 million) and where public investments match the investing decisions in start-ups of private investors, is a welcome step in this direction.
A strong institutional investor base is important for the development of equity and venture capital markets. The reintroduction of a defined-contribution pension pillar, as advocated in Chapter 1, would help in this regard, beyond contributing to the financial stability of the pension system.
The wider diffusion of digital technologies is a key instrument to strengthen productivity. While the potential of the current digital revolution to continue driving productivity growth in the most advanced countries and firms is subject to debate, there is a vast underexploited potential for a wider diffusion and a more efficient use of existing technologies in Hungarian firms, especially SMEs.
Hungary’s fixed Internet network is one of the fastest in Europe (Figure 4.11), and 83% of the population had access to a Gigabit network in 2024. Nevertheless, 55% of firms reported experiencing Internet disruptions, which was well above the European average of 23% (World Bank, 2023[33]). Moreover, continued investments will be required to settle these issues, finalise the roll-out of the mobile 5G network, and limit disparities between Budapest and other regions.
Average download speed for fixed networks, Mbps, 2023-Q1
Note: The range indicates the variation regional at the level of NUTS2 regions.
Despite access to a performing digital infrastructure, digital take-up by Hungarian firms remains unequal. While nearly all large firms have at least basic digital intensity, in line with the situation in best-performing OECD countries, only half of Hungarian SMEs achieve the same performance (Figure 4.12, Panel A). While nearly all firms have Internet access, whatever their size, SMEs are less likely than large firms to subscribe to a contract providing a high download speed (above 100Mbps) and this gap is wider in Hungary than on average in the EU despite a better infrastructure, which may be related to relatively high telecommunication prices (see below). Compared to EU counterparts, Hungarian SMEs are especially lagging behind large domestic firms regarding cybersecurity. For the use of digital services, the gap between Hungarian SMEs and larger firms is wider than in the EU for social media, and similar for e-commerce and artificial intelligence (AI), but AI penetration is more limited in Hungary (Figure 4.12, Panel B).
Note: In Panel A, the firms with at least basic digital intensity are those responding positively to at least four of the twelve questions underlying the EU Digital Intensity Index (V3). In Panel B, data on documented procedures on ICT security refers to 2024, and data on the use of social media refers to 2023.
Source: Eurostat (Panel A) and OECD Database on ICT access and usage by businesses (Panel B).
Insufficient digital skills and high telecommunication prices may slow down the adoption of digital technologies. These issues affect all firms, but they are particularly harmful for SMEs. Owing to their higher productivity, large firms can pay higher wages to attract scarce talents more easily. High telecommunication prices may also have a more detrimental impact on the digitalisation of SMEs if they compound with financial constraints.
The proportion of ICT specialists (4.1%) and especially the proportion of ICT users (6.0%) in Hungarian firms are below the EU average (4.3% and 8.3%, respectively) (Figure 4.13, Panel A). While large Hungarian firms provide ICT training to their employees on par with their European counterparts, Hungarian SMEs do not (Figure 4.13, Panel B), which may increase their lag even further in the future. To avoid this, prioritising the development of digital skills in initial education and adult learning is crucial (see below). The SME Digital platform that was launched in October 2024 to help Hungarian SMEs assess their digital maturity and needs with a free online questionnaire is a welcome step. The way it is used and the follow-up actions undertaken by SMEs should be evaluated.
Note: Panel B: In Hungary, 14.8% of firms with 10-49 employees, 35.5% of those with 50-249 employees, and 70.7% of those with 250+ employees provided digital training in 2024.
Source: OECD Going Digital Toolkit (Panel A) and Eurostat (Panel B).
Telecommunication prices in Hungary are relatively high, and increasingly so. Once expressed in the same currency, the price level of telecommunication is close to the one in the euro area, even though the lower economic development of Hungary would suggest lower prices, which is indeed the case for consumer services as a whole (Figure 4.14, Panel B). While price level comparisons may be affected by measurement uncertainty due to the difficulty to identify common products that are representative of consumption in each country, domestic price developments can be measured with higher precision. Even accounting for the depreciation of the forint against the euro over the period, telecommunication prices in Hungary have grown faster than in the euro area since 2020 with a marked inflexion since the end of 2022, suggesting that the price gap with the euro area has further narrowed. The main drivers of this price increase in Hungary have been mobile phone, Internet access and bundled telecommunication services. While high overall inflation following the COVID-19 pandemic and the outbreak of the war in Ukraine in 2022 contributed to push up telecommunication prices in Hungary, nothing similar happened in the euro area. The continued increase in Hungarian telecommunication prices while overall inflation has receded is also difficult to explain. The fact that the main telecommunication operators decided to freeze their prices in 2025 is welcome, but this measure was only temporary.
Competition is key to ensure lower prices in the telecommunication sector. Three main operators currently share the bulk of the mobile telecommunication market in Hungary. Two smaller operators have recently entered the market but belong to one of the other three companies, which is unlikely to increase competition. As mentioned in the previous Economic Survey of Hungary (OECD, 2024[8]), regular investigations by the Competition Authority are necessary to avoid collusion in such markets. The entry of a new operator may also be considered. In France for example, mobile prices remained relatively high and infrastructure investments sluggish until the Competition Authority condemned the three incumbents for collusive behaviour and an additional operator was allowed to enter the market under specific conditions (Dozias, 2023[35]) (Berne, Vialle and Whalley, 2019[36]). When 3G licences were auctioned in France, one was reserved to a new entrant and sold at a fixed price, and the new company was allowed to conclude an initial roaming agreement with the historical operator, thus reducing upfront infrastructure investment costs. Similarly, some of the frequency bands in the latest 5G spectrum auction in Italy were reserved for new entrants. Considering that no new player has applied for a mobile phone license in Hungary for years, reserving some frequency bands and offering specific conditions to new entrants could be considered in the future.
Hungary also has a high proportion of settlements that are connected to only one optical network, resulting in a strong position of its owner and lack of competition (Government of Hungary, 2022[37]). Infrastructure sharing is currently allowed by the Hungarian law on electronic communications based on a bilateral agreement between operators. The regulator (NMHH) can also impose network sharing to operators considered as having a “significant market power”, which is usually assessed at a broad geographical level. To further facilitate competition, market power could be assessed at a more granular level. NMHH could also play a stronger role by imposing technical specifications and regulating rental prices to access existing ducts, as in France and Italy.
Note: In Panel A, telecommunication (COICOP 1999 code 08) includes postal services as well as telephone equipment and services. It is the most disaggregated level that is publicly available from the Eurostat-OECD PPP Programme. In Panel B, services related to communication include postal and telephone services.
Source: Panel A: Eurostat-OECD PPP Programme (2020 results), Panel B: Eurostat (HICP).
While AI can benefit SMEs and larger firms alike in various ways, e.g. for the automation of low-value added tasks, the detection of anomalies in production processes, and the analysis and forecast of market trends, cost and skill barriers may explain slower AI adoption by SMEs (OECD, 2021[38]) (European Commission, 2025[39]). AI adoption comes with uncertain benefits and sunk costs to be paid upfront in relation to data collection and model training that SMEs may find difficult to finance. Insufficient skills also contribute to the lack of digital awareness and know-how of SMEs. Initiatives to facilitate SME financing (Section 4.3) and improve the initial education and adult learning systems, such as the free introductory AI course giving right to a micro-credential that was launched in 2025 (Chapter 3 and Section 4.5), are key. The use of external AI expertise and technology can also be promoted to help SMEs compensate for a lack of internal capacity in the short term. Nevertheless, ensuring that the AI business services market is competitive enough to provide affordable solutions for SMEs, and that SMEs progressively develop internal skills to avoid being overly dependent on external providers is crucial. Helping SMEs to develop tailored AI solutions and upskill their workforce and connecting them with the European AI innovation ecosystem is exactly the purpose of the EU Experience Centres for AI (European Commission, 2025[39]). Such Centres are present in all Hungarian regions and should be promoted with information campaigns.
As digitalisation progresses, Hungarian firms should be made aware of cybersecurity risks. This is especially true for SMEs, which may find it more difficult to access such information. In addition to being a threat for SMEs, weak digital security practices may be a barrier for the establishment of joint projects with larger firms. In 2022, only 13% of firms in Hungary reported cybersecurity incidents leading to the unavailability of IT services, which was below the EU average (22%), but at the same time they seemed less prepared than EU peers to tackle such risks, as only 5% of them were insured against cybersecurity risks (EU: 25%), and 79% were using IT security measures (EU: 92%) (European Commission, 2024[40]). While around 70% of large Hungarian firms have documented procedures on IT security, this is only the case for 10% of the firms with less than 50 employees, well below the EU average of 30% (Figure 4.12, Panel B). The exercises organised by the National Cybersecurity Centre (NCSC) to promote the cybersecurity of critical infrastructure and its joint work with the Central Bank and the Banking Association to increase online financial awareness and security are welcome. Such initiatives should be extended to public institutions and cover non-financial issues as well. Hungary could also follow the example of Germany where the “Transfer Centre for Cybersecurity in SMEs” serves as a point of contact for questions relating to IT security. It offers free practical information and support on how to deal with the dangers posed by cyberattacks. Finally, making cybersecurity a prominent topic of IT courses in initial and adult learning is key to improve the protection of SMEs (see below).
A digital government can stimulate digital adoption by firms by providing more efficient public services, facilitating the creation of new businesses bringing in the latest innovations, and fostering the development of digital skills in the population by spreading the use of digital tools (Sorbe et al., 2019[41]). Such government-induced diffusion of digital tools may be especially valuable for SMEs with less than basic digital intensity. Moreover, e-government has the potential to simplify administrative procedures which are especially burdensome for SMEs with limited resources.
OECD Digital Government Index
Note: The data collection period for this edition of the DGI is from 1 January 2020 to 31 October 2022. The OECD aggregate refers to the unweighted average of 33 countries with available data. The 2025 OECD Digital Government Index based on 2023-24 data has not been finalised yet, but preliminary results show an improvement in Hungary’s ranking across OECD countries.
Source: OECD Survey on Digital Government 2.0.
Until recently, the digital transformation of the public sector has been slower in Hungary than in most OECD countries. Hungary is especially lagging behind for encouraging digital government investments (“government as a platform”), making government data available to the public (“open by default”), and proactively adapting to user needs (“proactiveness”) (Figure 4.15). Following the publication of the National Digital Citizenship Programme in December 2022, a few prominent digital public services were made accessible to the public. In 2024 for example, an official digital authentication service (DÁP) opened, and the tax administration (NAV) launched a mobile phone application. To make further progress, the government could set up a central fund to finance ideas around digital public services and help them scale up to the national level, as done in France with the FAST Programme (Government of France, 2025[42]). It could also develop a national strategy for making data openly accessible in key areas including information on registered businesses and ownership, Earth observations and environment, meteorological information, geospatial information on building locations and transaction prices, education, and health (OECD, 2023[43]). To better adapt and respond to user needs, the government should use data more systematically for regulatory development, impact assessment and public procurement, including for detecting fraud and improving public sector integrity. These are areas where the use of Artificial Intelligence seems promising (OECD, 2025[44]).
4.5.1. The large FDI stock generates only limited spillovers to the domestic economy
The stock of inward FDI as a share of Hungary’s GDP remains above levels seen in several neighbouring countries and the OECD as a whole but it has declined over the last decade (Figure 4.16, Panel A). These FDIs are increasingly concentrated in manufacturing with high technological content, in particular electrical and transport equipment (Figure 4.16, Panel B). They are also increasingly sourced from outside the OECD, in particular from China (Figure 4.16, Panel C).
Note: In Panel A, FDIs located in Special Purpose Entities (SPEs) are excluded in all countries except Poland. Between 2005 and 2017 (last year where they are available), FDIs located in SPEs in Poland represented less than 2.5% of GDP. Therefore, total FDIs can be considered a reliable proxy of FDIs excluding SPEs in Poland. In Panel B, the “Other” category includes the private purchase of real estate, agriculture, mining and quarrying, utilities, construction, and other services. In Panel C, the OECD composition in 2014 is assumed to be the same as in 2023, and the country of origin of FDIs in the country of the ultimate parent company.
Source: OECD statistics on FDI positions (Panel A), Central Bank of Hungary (Panels B and C), OECD calculations.
FDI can generate both direct and indirect benefits for the host economy, by creating jobs in newly established firms and facilitating technology transfers. Technology upgrading in many export-oriented developing economies has been driven by foreign firms outsourcing increasingly complex parts of their production process (Gereffi, 1999[45]). FDI facilitates the integration of domestic firms in the value chains of technologically more advanced foreign firms, which gives them the opportunity to increase their know-how and the quality of their products. Empirical case studies provide various examples of multinational enterprises (MNEs) helping their domestic suppliers to improve their efficiency, by working directly with them on technological and managerial practices (Javorcik, Keller and Tybout, 2008[46]) (Bloom, Van Reenen and Melvin, 2013[47]). While not all foreign-owned firms in Hungary are top-productivity firms, they are 40% more productive on average and they are overrepresented in the upper part of the productivity distribution of firms operating in the country (Figure 4.17), which provides opportunities for spillovers.
Note: Productivity is defined as value added per employee and foreign-owned firms as firms with more than 50% of foreign capital. While they represent 9% of firms in the total Hungarian economy, their share increases to 22% in the highest productivity decile.
Source: Panel A: Eurostat Foreign Affiliate Trade Statistics and OECD Structural Business Statistics; Panel B: MNB-OECD research (Box 4.2)
Foreign-owned firms produce 80% of Hungarian exports of goods and contribute for a large part to the participation of the Hungarian economy in Global Value Chains (GVCs) (Figure 4.18, Panel A). Nevertheless, only 54% of domestic value added is embedded in Hungarian exports of goods and services, much below the OECD cross-country average of 73% (Figure 4.18, Panel B). This reflects a relatively high domestic content of Hungarian exports in services (76%), which is close to the OECD average, but a much lower one for manufacturing exports (41%). The latter is not only lower than the OECD average (64%), but also below the domestic content of Czech (54%) and Polish (62%) manufacturing exports. The domestic content of Hungarian exports in transport equipment is especially low (32%). As FDI coming to Hungary is increasingly tilted towards manufacturing, these results imply that the exports generated by those FDIs include a decreasing share of domestic value added.
The low domestic content of Hungarian exports is both due to the fact that Hungary’s main exporting sectors generate little value added compared to gross output, which may reflect a low pricing power, and that foreign firms installed in Hungary source most of their inputs from abroad (Figure 4.18, Panel C), thus limiting demand and spillovers to domestic-owned firms.
Note: In Panel B, the average domestic value-added share of gross exports across OECD countries is significantly below the similar measure for the OECD as a whole due to intra-OECD trade.
Source: Panel A: OECD Database on Trade in goods by enterprise characteristics and ownership. Panel B: OECD Database on Trade in value added (TiVA). Panel C: OECD Analytical Database on the Activity of Multinational Enterprises (AMNE). OECD calculations.
The automotive industry provides a typical example of the massive FDIs with limited spillovers that took place in Hungary since the fall of the Soviet bloc. The restructuring of the Western European automotive industry from the mid-2000s to the mid-2010s was beneficial to Hungary and most neighbouring countries in terms of net job creations. Nevertheless, most of them were generated by foreign-owned firms while domestic firms in the automotive sector recorded net job losses (Pavlinek, 2020[48]). Moreover, the automotive industry mainly transferred lower value-added assembly and component manufacturing functions to Central and Eastern Europe (CEE), while core R&D functions remained in origin countries. For example, Hungary hosted 5% of the total employment of the European automotive industry in 2023, but only 2% of the related R&D expenditure (Figure 4.19). One explanation for limited interconnections between the newly installed foreign-owned firms and the remaining domestic firms is that Western European carmakers transferred factories to CEE mainly for cost-cutting reasons and encouraged their key suppliers to do the same, in order to minimise transportation costs and let them take advantage of lower labour costs to reduce their own input prices (Pavlinek, 2020[48]). While ensuring that a larger part of the value chain would be located in CEE, this has also limited the potential for knowledge spillovers towards domestic suppliers.
Note: R&D expenditure is measured in US Dollars and purchasing power parities. The ‘Other’ category groups Belgium, Denmark, Estonia, Finland, Greece, Ireland, Latvia, Lithuania, the Netherlands, Slovenia, and Sweden.
Source: Panel A: Eurostat, Panel B: OECD ANBERD Database.
While larger Hungarian firms rely to some extent on technology licensed from foreign firms, only few SMEs do so, hence further limiting opportunities for technology transfer (Figure 4.20). The ability to adopt and use new technologies efficiently depends on available skills in the labour market and on how well firms are managed. Across countries and firms, investment in R&D and the use of technology licensed from foreign firms is positively related to management quality (Belacin et al., 2025, p. 41[49]). Developing skills, in particular management skills, will be key to improve the situation (see below).
Share of firms using technology licensed from foreign companies
Note: Data for Hungary and the Slovak Republic refers to 2023. For Czechia and Poland, it refers to 2024 and 2025, respectively.
Source: World Bank Enterprise Survey.
While inward FDI can have ambiguous effects on domestic firms in the industry where they occur, because increased competition from technologically advanced firms can induce domestic firms to innovate but may also drive them out of the market, they are more likely to have positive spillovers on upstream sectors, as foreign firms may transfer knowledge to their suppliers to meet certain quality standards (Javorcik, 2004[50]).
Until recently, the impact of FDI on host economies could only be studied based on industry-level economic statistics, but firm-to-firm transaction data are progressively becoming available for economic research. Such data allow mapping business networks and make it easier to study the underlying mechanisms and the causal impact of FDIs on supplying firms. Hungary is one of the few OECD countries where VAT declarations are fully digitalised and separately collected for each transaction, which generates firm-to-firm transaction data that can be mapped with fiscal information on the output, value added and employment of firms (Greene, Guillouet and Lalanne, 2024[51]).
Recent evidence based on transaction data shows that Costa Rican firms becoming suppliers of foreign MNEs investing in Costa Rica experience persistent performance gains, including 4 to 9% higher total factor productivity (TFP) after four years (Alfaro-Ureña, Manelici and Vasquez, 2022[52]). Belgian firms experience similar productivity gains in the medium run when they start supplying MNEs, as well as large domestic firms and exporters (Amiti et al., 2024[53]). Based on the same methodology as (Amiti et al., 2024[53]), MNB-OECD research for this Survey shows that Hungarian firms in the industry sector also experience significant productivity gains when they start supplying the largest firms operating in the country (Figure 4.21, Panel A). No such effect is found when they start supplying smaller firms (Panel B), possibly due to more limited room for technology transfers or signalling effect in this case. No significant productivity effect is found for suppliers belonging to the services sector either.
Note: Top firms are defined as those in the top 0.1% of the sales distribution. In the above event study, t=1 is the date at which Hungarian businesses start supplying top firms for the first time. As in (Amiti et al., 2024[53]), only strong enough relationships representing more than 10% of the total sales of suppliers at t=1 are considered. (Labour) productivity is defined as sales divided by employment. Defining productivity as value added divided by employment leads to similar results. Due to data limitations, firm-level TFP could not be calculated.
Source: Unpublished MNB-OECD research for this Survey.
4.5.2. Attracting FDIs with a high potential for spillovers
Even though large foreign companies investing in Hungary will probably favour larger domestic firms with sufficient production capacity and recognised know-how as first-tier suppliers, these firms may then turn to domestic SMEs to become second- or third-tier suppliers. Therefore, ensuring good framework conditions for FDI is expected to indirectly favour SMEs.
In order to reap the potential benefits of FDIs for the domestic economy, Hungary has set up FDI regulations that are among the least restrictive in the OECD (Figure 4.22) and the government offers various types of support to encourage incoming foreign investments, including tax allowances and grants. The most prominent investment grants, called VIP grants, are provided to large foreign investors on a case-by-case basis by the government based on a number of criteria including the estimated impact of the investment on the national economy and its public finances, the number of jobs created and the proportion of high-skill workers, and the existing or planned collaborations with domestic R&D and higher education institutions. Nevertheless, the evaluation method used by the government to allocate VIP grants has recently been reviewed by the State Audit Office, which noted that the assessment could be further refined. In particular, the review highlighted the potential to give broader consideration to alternative investment and job creation scenarios that may have materialised in the absence of public support, better reflect the opportunity cost of public funds, adopt more conservative assumptions regarding the broader economic impacts of FDI – such as effects on imports and labour costs – and place greater emphasis on the development of linkages with domestic suppliers (State Audit Office of Hungary (ASZ), 2025[54]). The criteria to allocate VIP grants have been finetuned in 2025 to also account for R&D activity, renewable energy generation, local supplier involvement and the training of employees, which is welcome. Nevertheless, robust and transparent statistical evaluation methods, as well as economic models, should be used more systematically to evaluate the impact of FDI, both ex ante and ex post, and assess in which case government support is justified.
OECD FDI Regulatory Restrictiveness Index, 2024
Note: A lower index indicates less restrictive FDI regulations.
Source: OECD
There may be some room for Hungary to influence the terms and conditions of FDIs, within the limits allowed by EU legislation. China systematically bargained trade access to its domestic automotive market in return for capital and technology, with the aim to accelerate the development of the Chinese industry and avoid giving too much power to foreign-owned firms (Liu and Dicken, 2006[55]). While the bargaining power of CEE countries is much lower than China’s, some past FDI agreements in the region included local content requirements. For example, when Volkswagen signed a joint venture agreement with the then state-owned Czechoslovak firm Škoda in 1991, the government negotiated a clause protecting Škoda’s domestic suppliers for a certain period (Pavlinek and Ženka, 2011[56]). Nevertheless, EU membership now makes it impossible to discriminate against imports produced anywhere in the EU, or to impose that manufacturing firms investing in Hungary should source a minimal share of inputs from Hungarian suppliers rather than importing them from another EU country. While the EU as a bloc has been reluctant to use local content requirements in trade policy since the late 1990s (Pardi et al., 2025[57]), the situation might change in the future, as the European Commission has recently made de-risking, in particular towards China, a political objective (European Commission, 2023[58]). Nevertheless, such policy should be implemented at EU level with a large-enough market to avoid deterring FDI, and a strong-enough network of suppliers to avoid harming competition and creating protected industries with high production costs.
Framework conditions such as intellectual property rights (IPRs) and public integrity also have a key role to play to attract FDIs with a high potential for the domestic economy. Empirical evidence shows that strong IPRs do not only encourage foreign firms to invest but also to bring in the latest technology. For example, US MNEs tend to respond to changes in the protection of intellectual property in host countries by increasing technology transfers to their affiliates (Branstetter, Fisman and Fritz Foley, 2006[59]). While Hungary is part of many major international IPR agreements including the European Patent Convention and the World Trade Organisation’s Agreement on Trade-Related Aspects of IPRs, official statements by the US Administration, that most international investors are likely to consider, underline that the enforcement of IPRs in Hungary could be improved by establishing specialised IPR units in the Prosecutor General’s Office and reinforcing sentences in civil and criminal IPR infringement cases. The main reported issues concern Internet-based piracy, software license abuses, and the sale of counterfeit pharmaceutical products (US Department of State, 2023[60]).
Corruption in host countries has been found to deter incoming FDIs and to shift their composition towards origin countries where corruption is also higher (Wu, 2006[61]). It also shifts the ownership structure of FDIs towards joint ventures with local partners, possibly to facilitate interactions with local authorities. Nevertheless, it also reduces the probability that firms at the technological frontier invest in the country, as they usually prefer to be the sole owners of their foreign affiliates to limit the possibility of technological leakage (Javorcik and Spatareanu, 2008[62]) (Javorcik and Wei, 2009[63]). Pursuing efforts to limit corruption in Hungary (see above) is therefore essential to attract FDIs with a higher technological content.
4.5.3. Increasing the absorptive capacity of the domestic economy to foster the participation of SMEs in GVCs
While a favourable legal framework to attract FDIs, protect IPRs and deter corruption encourages foreign firms to bring in additional technological content to the countries where they invest, spillovers to the host economy crucially depend on its absorptive capacity.
Fostering links between domestic SMEs, foreign-owned firms, and higher education institutions
Industrial clusters, defined as “geographically proximate groups of interconnected companies and associated institutions in a particular field” (Porter, 2000[64]), may generate benefits for workers and firms, especially SMEs with otherwise limited connections with other firms and universities. For example, the concentration of producers in a given industry creates incentives for suppliers to locate nearby in order to save on transportation services. Industrial clusters also favour the emergence of pools of specialised workers, which improves labour matching. Most importantly, the presence of closely connected firms, workers, students and researchers in a given location facilitates the exchange of information and knowledge spillovers, which may facilitate the participation of SMEs in GVCs, their recruitment of skilled workers, and their access to the latest technologies.
Nevertheless, there is only limited empirical evidence justifying that governments should play an active role in fostering industrial clusters. First, the actual impact of agglomeration on productivity and technology spillovers may be more limited than usually thought, and firms are likely to take these benefits into account when they decide to locate in a specific place, thus leading to “natural clusters” without any direct policy intervention (Martin, Mayer and Mayneris, 2011[65]). Even if market forces leave out some cluster benefits due to positive externalities, it is unclear whether policies should target agglomeration, labour market or knowledge diffusion externalities. Therefore, they risk being inappropriate. This is because there is little consensus in the academic literature on the relative magnitude of cluster externalities, which probably depends on local circumstances (Duranton, 2011[66]). Lastly, policies supporting the emergence of specialised clusters may have unintended negative consequences. For example, narrowly concentrated sets of economic activities may hamper innovation, increase the vulnerability of the overall economy to sectoral shocks, and firms that are untargeted by cluster policies may be negatively affected, maybe due to the fact that clusters end up capturing resources that are in limited supply, such as financial resources or skilled labour (Audretsch et al., 2019[67]).
In this context, the Hungarian cluster strategy is rightly staying away from engineering further agglomeration of industrial activities or creating new clusters ex nihilo but rather trying to improve the performance of firms and their collaboration within existing clusters. This strategy has been allocated a budget of HUF 250bn (0.3% of 2024 GDP) over seven years, co-financed by the EU. The main envisaged actions concern support to IT investment, provision of common physical spaces to encourage cooperation between companies, financial support for consultancy and training, and financial support for participation in international projects (Hungarian Ministry of Regional Development, 2023[68]).
Either within or outside geographical clusters, maximising knowledge and technology transfers from higher education institutions (HEIs) to firms is essential. This depends on many factors, including the curriculum of HEIs, the involvement of the private sector in the board and the budget of HEIs, the existence of performance objectives in the way HEIs are funded by the government, and the existence of dedicated institutions such as R&D centres for industry-science collaboration, business incubators, and technology-transfer organisations (OECD, 2019[69]).
Share of higher education expenditure on R&D financed by the business sector, 2023 or latest year
Note: Data for Australia, Chile, Iceland, Israel refer to 2022. The OECD aggregate refers to the unweighted average of 35 countries.
Source: OECD (2025), OECD Main Science and Technology Indicators.
There is scope to strengthen business-science linkages in Hungary, as shown by the limited share of higher education expenditure on R&D that is financed by domestic businesses (Figure 4.23). Since 2024, the Ministry of Culture and Innovation has helped six universities to develop technology transfer offices with the aim to help researchers identify market opportunities, create start-ups and set up licensing agreements. In June 2025, the Budapest University of Technology and Economics (BME) was the first Hungarian university to sign a performance contract with the government, which links part of its future financing to specific performance objectives such as patent and innovation activity, the revenues raised from the private sector, and the number of students enrolled in engineering, natural sciences, and IT programmes. This is a step in the right direction which could be extended to other universities, by adapting performance indicators to the specificities of each institution. As patenting activity tends to be concentrated among leading academic institutions, the mobility of students to industry and the development of student start-ups may also be accounted for in future performance contracts with universities (OECD, 2019[69]).
Improving the transport infrastructure
An efficient transport infrastructure facilitates knowledge diffusion and connections between workers, firms and education institutions, and contributes to the FDI attractiveness of a country. It also increases chances for domestic firms, in particular SMEs that are disseminated all around the country, to contribute to global value chains. Nevertheless, the quality of the transport infrastructure in Hungary is perceived as low in international comparison (Figure 4.24).
Note: The scores assess the quality (extensiveness and condition) of road and railway infrastructure. They are based on single responses of the World Economic Forum’s survey respondents and range from 1 (extremely underdeveloped, among the worst in the world) to 7 (extensive and efficient, among the best in the world). Since responses to this survey are qualitative and only provide a broad-based assessment on the quality of road/railroad transport infrastructure, caution in interpretation is needed.
Source: World Economic Forum.
Developing human capital
Along with insufficient demand, insufficient technical skills and know-how can be a key obstacle for technology adoption by firms (Cirera, Comin and Cruz, 2022, p. 144[2]). This issue is prevalent in Hungary, where 34% of firms considered the inadequately educated workforce as their biggest obstacle in 2023 (Figure 4.25, Panel A). While firms with foreign capital face milder recruitment difficulties than domestic firms, 23% of them nonetheless report skill shortages as their main challenge.
Skill shortages in the labour market are especially harmful for domestic SMEs because larger and foreign-owned-firms can more easily attract talents by paying higher wages. Recruitment difficulties can, in turn, limit the capacity of domestic SMEs to reap the full productivity gains of innovations. For example, digital technologies have been shown to disproportionately increase the productivity gap between high- and low-productivity firms in industries with ICT skill shortages (Sorbe et al., 2019[41]).
Finding and recruiting the right skills is not only key for Hungarian SMEs to improve their productivity and increase their chances to join the supplier network of leading MNEs. It is also crucial for securing the labour market prospects of workers in the longer term because, with a high share of routine tasks, many jobs are at risk of automation in Hungary (Figure 4.25, Panel B). Digitalisation and the emergence of artificial intelligence, as well as demographic change and the expected decline in the working-age population (by 17% by 2060 according to the latest EU projections) highlight the need for strategic investments in initial education, as mentioned in Chapter 3, but also in adult education.
Note: Panel A: Data for Hungary and the Slovak Republic refers to 2023. For Czechia and Poland, it refers to 2024 and 2025, respectively. Panel B: The results are based on a survey of experts who evaluated the degree of automatability for 98 skills and abilities. The risk of automation measure is then computed by occupation as the average rating for each skill or ability used in the occupation across all expert responses weighted by the skills or abilities’ importance in the occupation.
Source: Panel A: World Bank Enterprise Survey. Panel B: (OECD, 2023[70]).
Management skills deserve specific attention for productivity improvement, as differences in management practices account for about 30% of productivity differences between countries, as well as across firms within countries (Bloom, Sadun and Van Reenen, 2016[71]). The misalignment of incentives between workers and firm owners or managers can significantly slow the diffusion of innovations – for example when workers are not properly compensated for adopting new business practices that initially reduce their output, or when the gains from reorganising work are not fairly shared between firm owners and employees. Managers have a crucial role to play in ensuring that everyone in a firm has an incentive to accelerate the diffusion of innovations (Atkin et al., 2017[72]). While management practices in large Hungarian firms are in line with international standards and above the OECD average, those in SMEs are lagging behind (Figure 4.26). Smaller firms may not be aware of management practices used elsewhere or may not see the value added of implementing them.
The share of adults attending lifelong learning in Hungary has increased over time and may now be one of the highest in the OECD, even though there is significant data uncertainty for Hungary (Figure 4.27). In any case, the average training time in Hungary is much below the EU average, reflecting scheduling conflicts as well as financial constraints (OECD, 2025, p. 81[73]). Some groups, such as unemployed workers or those with low initial education are significantly underrepresented. Similarly, Hungarian SMEs are less likely to offer formal training to their employees than larger firms (World Bank, 2023[33]). Public policies have a key role to play to promote adult learning and help alleviate time and financial constraints.
Management practices index, 2025 or latest available year
Note: The Management practices index aggregates eight subindices that can be grouped into three topics: monitoring performance, setting targets, and providing incentives. A higher index indicates better management practices. No specific index is available for firms with less than 20 employees.
Source: World Bank Enterprise Survey.
Relying on micro-credentials and training leaves to address time constraints
Recognised certifications for short courses, also known as micro-credentials, can help alleviate time constraints while ensuring that sequences of targeted courses eventually make a consistent upskilling or reskilling strategy that complements initial education and improves labour market prospects (OECD, 2024[74]). Hungary has already established a legal framework for micro-credentials, by passing amendments to the Adult Training Act and the Higher Education Act in 2022, as well as the Vocational Training Act in 2024. Hungary’s micro-credential system was launched in higher education in the autumn of 2023, in adult education in December 2024, and in vocational education and training (VET) in September 2025. Nevertheless, adult learning programmes frequently lack recognition by both employers and learners, partly due to inadequate quality assurance mechanisms, as existing ones tend to focus on administrative rather than substantive issues. All courses should be linked to VET textbooks, but it is difficult to continuously monitor the quality of the available courses, as they are delivered by more than 900 providers. Moreover, information on available micro-credentials remains fragmented, which may contribute to limited take-up by some groups of workers and firms.
Looking forward, Hungary’s burgeoning micro-credential system could be improved in several ways. In order to raise confidence in the system and allow micro-credentials to be combined with each other, quality assurance should be based on harmonised quality standards and evaluation methods across education sub-sectors. The relevance of the courses for the labour market should also be regularly assessed based on the inputs of Sectoral Skills Councils (ÁKT), which are business representative bodies created in 2020 to support the continuous development of VET, and the Labour Market Forecasting System (MER), an IT tool launched in 2022 to forecast labour market needs for occupations requiring vocational qualifications, and support decision-making related to VET, adult learning, and other forms of training (OECD, 2024[74]).
Clarifying the conditions under which training leave can be taken would make them more attractive for workers and firms. Under the current legislation, Hungarian employees are allowed to take a training leave, but the compensation paid by employers, the length of the leave and the potential payback clause need to be agreed on a case-by-case basis between employers and employees in a learning contract. The government could facilitate the use of such leaves by setting conditions under which they cannot be denied by the employer (e.g. depending on training type and employee qualification), and ensuring a minimum compensation for workers. At the same time, facilitating training involves a risk for employers, which is that employees leave the company immediately after the termination of their training. This risk can be meaningful for SMEs, due to their limited pool of employees and their higher recruitment difficulties. Payback clauses, by which employees commit to reimburse part of their training if they leave the firm before an agreed retention period, are a way to address this risk and can be included in learning contracts in Hungary. Nevertheless, they should be regulated in collective agreements to avoid any excessive restrictions (OECD, 2021[75]).
Note: In all Panels, lifelong learning covers both formal and non-formal learning. It should be noted that the 2023 OECD PIAAC Survey indicates a much lower share of adults participating in formal and non-formal learning in Hungary over the last 12 months than the 2022 Eurostat Adult Education Survey (AES), thus highlighting the significant uncertainty around this figure (OECD, 2025, pp. 15 ; 36-37[73]).
Source: Eurostat - Adult Education Survey (2022).
Reducing training costs
Beyond time constraints, high costs also hamper adult training. While keeping administrative procedures as simple as possible is key, financial incentives provided by the government also have a role to play. Interest-free loans are available to support participants in adult education. Under the Development and Innovation Operational (EDIOP Plus) Programme focusing on SMEs, training and wage subsidies are also available since October 2021 for language, ICT, professional and soft-skill training courses. Funding has been regularly extended for short-term periods and is currently available until 2027. The National Digitalisation Strategy 2022-30 also includes a pillar on the development of digital skills, but domestic funding remains unclear. While EU funds (ESF+) also contribute to support adult learning in Hungary and are currently not subject to conditionality rules (Chapter 1), long-term domestic funding should be clarified.
Given the need for fiscal consolidation in Hungary (Chapter 1), resources to support adult training should be targeted towards those who are less likely to attend training but need it most. This includes unemployed and older-age workers, and those with low educational attainment (Figure 4.27, Panel C). For efficiency reasons, Austria is in the process of making access to training leaves more targeted, following a recent evaluation showing that the previous universal system (Bildungskarenz) mainly benefited those who were well integrated in the labour market rather than lower-educated and older workers (Bittschi et al., 2023[76]). In the same way, the financial support provided to firms to encourage the training of their employees could be targeted towards SMEs, as in Germany where it ranges from 20 to 100% of training costs depending on firm size (OECD, 2021, p. 15[75]).
Setting up training networks and pooling resources is a way for SMEs to reduce training costs and share experience. Management training in particular can be expensive when provided by international consulting firms and hence difficult to scale up. Group training where consultants work with small groups of firms at the same time provides a cheaper alternative where firms may also gain from brainstorming with each other. This has been found to increase management practices at least as well as individual firm training, with a positive impact on employment, value added, profits and productivity even after several years (Iacovone, Maloney and McKenzie, 2022[77]).
Some training networks exist in Hungary, but only a few of them, such as the one managed by the National Association of Enterprise Developers (MVOSZ), have permanent funding. The government should consider providing financial incentives for the creation and expansion of such networks, with the involvement of leading international firms and outreach outside the main cities, as done by the UK government with the “Small Business Leadership Programme” (UK Government, 2022[78]). This Programme delivered courses to 3000 SME leaders in 2020-21 with the aim to improve their management skills and the productivity of their businesses, while creating opportunities for building peer networks. Ex-post evaluation suggests that the courses significantly helped SME leaders to undertake business reviews, diversify products, services and customers, and invest in technology in the wake of the pandemic. Nevertheless, lockdowns imposed all courses to be held online, which reduced opportunities for developing networks. This shows the importance of in-person interactions for such courses. Austria is another example where such networks, called Impuls-Qualifizierungsverbünde, are well established and partly financed by the government and EU (ESF) funds. The Austrian Public Employment Service and selected consulting firms provide supporting services such as surveying the training needs of the network’s workforce and developing training plans and applications for available financial support for training. These networks must include at least three companies and 50% of SMEs (OECD, 2021, p. 42[75]).
Guiding workers into learning pathways
Beyond targeted subsidies, Individual Learning Accounts (ILAs) would be a way for the government to reach specific groups of workers and encourage skill acquisition in priority areas such as digitalisation. As lifelong learning opportunities are dispersed (Box 4.3), ILAs could also increase their visibility, facilitate comparison between courses and training providers, and simplify financing requests by making everything available on a single website. ILA implementation has been recommended by the EU Council in 2022 (EU Council, 2022[79]) and Hungary is currently considering how to proceed. As financing ILAs on a large scale would be costly and probably require reallocations within the education budget and access to dedicated EU funding, it seems wise to start with a pilot project where priority would be given to the engagement with industry representatives, the selection of training providers and courses (either formal certifications for longer trainings or micro-credentials for shorter ones), the creation of learning pathways for different types of workers, and the development of a dedicated webpage to be used as a one-stop shop for adult learning, as recommended by the European Commission (2024[80]).
Different types of adult learning opportunities exist in Hungary:
Basic and general education. The Springboard Class (Dobbantó) is a 6- to 24-month programme available from vocational schools for those who did not complete lower secondary education. Second-chance education programmes allow completing upper-secondary education.
Vocational education and training (VET) for adults can be provided by a range of institutions including governmental and non-governmental VET institutions, vocational upper secondary schools and adult training providers. There are 46 VET centres acting as intermediaries between the Ministry of Culture and Innovation and the 517 VET institutions in Hungary.
Higher education institutions (HEIs) offer full academic degree programmes and shorter courses for adults, including higher education vocational programmes (usually lasting two years) and specialised post-graduate programmes (lasting one or two years).
Labour market training is offered to registered job seekers, people with disabilities, and individuals assigned to public work schemes.
Training courses from private providers. Close to 17,300 private providers are currently active in Hungary.
The available information on adult learning in Hungary reflects this fragmentation. While the FAR platform was launched in 2020 to allow adult training providers to store information about their courses, in most cases information is still stored elsewhere. For example, information on VET programmes is accessible on the websites of VET centres, while the website of the Innovative Training Support Centre (IKK) offers more general information about the different types of VET opportunities available to adult learners. The national HEI admission system (Felvi.hu) provides information about different learning opportunities offered by HEIs. The Career Guidance Portal complements the previous information by offering a variety of self-assessment tools to measure learners’ skills, career interests and employability. Lastly, the Public Employment Service (NFSZ) website offers resources to job seekers on career counselling and labour market training but does not list the programmes that are eligible to the NFSZ funding scheme.
Source: (OECD, 2024[74])
The private sector can also significantly contribute to the provision of training courses, but the government should ensure the quality and relevance of these trainings to encourage uptake, especially if public financial support is involved. The German Go-Digital and Go-Inno initiatives offer compelling examples of how this can be done in practice. With these programmes, SMEs receive vouchers to purchase consulting contracts from consulting companies to improve their digital and innovation skills. To be authorised by the government, the consulting companies need to be legally independent, prove economic stability over the past years, guarantee competition-neutral advice, prove their technical expertise, provide references of small business advisory clients, and co-operate with universities and research institutions. The costs of consulting contracts with authorised firms are subsidised at 50%, provided that the consultancy rate does not exceed EUR 1,100 per day (OECD, 2021[75]).
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